Is Spherix Incorporated's (NASDAQ:SPEX) CEO Pay Justified?

Anthony Hayes took the helm as Spherix Incorporated's (NASDAQ:SPEX) CEO and grew market cap to US$12.53M recently. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. I will break down Hayes’s pay and compare this to the company’s performance over the same period, as well as measure it against other US CEOs leading companies of similar size and profitability. See our latest analysis for Spherix

Did Hayes create value?

Performance can be measured based on factors such as earnings and total shareholder return (TSR). I believe earnings is a cleaner proxy, since many factors can impact share price, and therefore, TSR. Most recently, SPEX released negative earnings of -US$6.22M , compared to the previous year's positive earnings. But on average, SPEX has been loss-making in the past, with a 5-year average EPS of -US$87.99. During times of negative earnings, the company may be incurring a period of reinvestment and growth, or it can be a signal of some headwind. In any event, CEO compensation should represent the current condition of the business. From the latest financial statments, Hayes's total remuneration dropped by -16.93%, to US$581.22K.

Is SPEX overpaying the CEO?

Though no standard benchmark exists, as compensation should be tailored to the specific company and market, we can estimate a high-level thresold to see if SPEX deviates substantially from its peers. This exercise can help direct shareholders to ask the right question about Hayes’s incentive alignment. On average, a US small-cap has a value of $1B, generates earnings of $96M, and remunerates its CEO at roughly $2.7M annually. Normally I would look at market cap and earnings as a proxy for performance, however, SPEX's negative earnings reduces the effectiveness of this method. Looking at the range of compensation for small-cap executives, it seems like Hayes is being paid within the bounds of reasonableness. On the whole, although SPEX is loss-making, it seems like the CEO’s pay is fair.

Next Steps:

In order to determine whether or not you should invest in SPEX, your thesis should be built on fundamentals. Even though CEO pay isn't technically a key concern, it could serve as an indication as to how board members align incentives and how they think about setting policies. These issues directly impacts how SPEX makes money, and factors impacting your return on investment. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:

1. Governance: To find out more about SPEX's governance, look through our infographic report of the company's board and management.
2. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of SPEX? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.