Here's Why Shareholders May Want To Be Cautious With Increasing VirnetX Holding Corporation's (NYSE:VHC) CEO Pay Packet

Key Insights

• VirnetX Holding to hold its Annual General Meeting on 13th of June
• CEO Kendall Larsen's total compensation includes salary of US$789.9k
• Total compensation is 253% above industry average
• VirnetX Holding's three-year loss to shareholders was 88% while its EPS grew by 8.7% over the past three years

The underwhelming share price performance of VirnetX Holding Corporation (NYSE:VHC) in the past three years would have disappointed many shareholders. What is concerning is that despite positive EPS growth, the share price has not tracked the trend in fundamentals. The AGM coming up on the 13th of June could be an opportunity for shareholders to bring these concerns to the board's attention. They could also try to influence management and firm direction through voting on resolutions such as executive remuneration and other company matters. We discuss below why we think shareholders should be cautious of approving a raise for the CEO at the moment.

See our latest analysis for VirnetX Holding

How Does Total Compensation For Kendall Larsen Compare With Other Companies In The Industry?

Our data indicates that VirnetX Holding Corporation has a market capitalization of US$14m, and total annual CEO compensation was reported as US$2.1m for the year to December 2023. That's a notable increase of 38% on last year. While we always look at total compensation first, our analysis shows that the salary component is less, at US$790k.

For comparison, other companies in the American Software industry with market capitalizations below US$200m, reported a median total CEO compensation of US$594k. Hence, we can conclude that Kendall Larsen is remunerated higher than the industry median. Moreover, Kendall Larsen also holds US$1.6m worth of VirnetX Holding stock directly under their own name.

Component	2023	2022	Proportion (2023)
Salary	US$790k	US$759k	38%
Other	US$1.3m	US$767k	62%
Total Compensation	US$2.1m	US$1.5m	100%

On an industry level, around 17% of total compensation represents salary and 83% is other remuneration. It's interesting to note that VirnetX Holding pays out a greater portion of remuneration through salary, compared to the industry. If non-salary compensation dominates total pay, it's an indicator that the executive's salary is tied to company performance.

A Look at VirnetX Holding Corporation's Growth Numbers

VirnetX Holding Corporation has seen its earnings per share (EPS) increase by 8.7% a year over the past three years. Its revenue is down 84% over the previous year.

We generally like to see a little revenue growth, but the modest improvement in EPS is good. It's hard to reach a conclusion about business performance right now. This may be one to watch. Although we don't have analyst forecasts, you might want to assess this data-rich visualization of earnings, revenue and cash flow.

Has VirnetX Holding Corporation Been A Good Investment?

With a total shareholder return of -88% over three years, VirnetX Holding Corporation shareholders would by and large be disappointed. Therefore, it might be upsetting for shareholders if the CEO were paid generously.

To Conclude...

Despite the growth in its earnings, the share price decline in the past three years is certainly concerning. The stock's movement is disjointed with the company's earnings growth, which ideally should move in the same direction. Shareholders would be keen to know what's holding the stock back when earnings have grown. At the upcoming AGM, shareholders will get the opportunity to discuss any issues with the board, including those related to CEO remuneration and assess if the board's plan will likely improve performance in the future.

It is always advisable to analyse CEO pay, along with performing a thorough analysis of the company's key performance areas. That's why we did our research, and identified 4 warning signs for VirnetX Holding (of which 2 make us uncomfortable!) that you should know about in order to have a holistic understanding of the stock.

Important note: VirnetX Holding is an exciting stock, but we understand investors may be looking for an unencumbered balance sheet and blockbuster returns. You might find something better in this list of interesting companies with high ROE and low debt.

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This article by Simply Wall St 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. Simply Wall St has no position in any stocks mentioned.