GoPro (NASDAQ:GPRO) CEO Nick Woodman was the highest paid CEO of 2014, according to the Bloomberg Pay Index. Woodman was recently granted 4.5 million restricted stock units, which were valued at $284.5 million at the end of last year.
In its S-1 filing, GoPro stated that its "future success depends in significant part on the continued service" of Woodman, and that losing him could adversely impact its "business, financial condition, and operating results."
But here's a troubling question: does Woodman deserve that massive paycheck, considering that GoPro stock has fallen 30% since the beginning of the year?
Why Woodman is worth $285 million
There's no question that GoPro wouldn't exist without Woodman, who founded the company in 2002 to originally provide surfers with quality action cameras.
To raise the capital to start GoPro, Woodman sold bead and shell belts out of his van, and later received an investment of over $230,000 from his parents. In 2004, GoPro sold its first camera system which used 35mm film, which was later replaced by digital models.
Simply put, without Woodman, GoPro wouldn't exist and be worth $6 billion today. As a result, Woodman's name is often considered synonymous with GoPro, which in turn has become synonymous with action cameras. Since Woodman created an entire niche market of action cameras, many investors are expecting him to keep GoPro one step ahead of its competitors.
Why Woodman isn't worth $285 million
But therein lies the problem. In GoPro's S-1 filing, the company cited three main risk factors. One was losing Woodman. The other two risks were the questionable ability to maintain the premium value of its cameras and competition from larger companies like Apple.
GoPro now faces both of those risks. A flood of cheaper action cameras with "good enough" specs forced GoPro to launch its entry level HERO for $129 late last year. However, Chinese smartphone maker Xiaomi subsequently undercut the low-end HERO with its Yi Action Camera, which offers beefier specs at half the price. Meanwhile, Apple filed an action camera patent in January, which caused GoPro stock to plunge 13% in a single day.
GoPro might be able to maintain a premium position in a market of cheaper rivals, but it might fail to hold on to that niche if Apple enters the market.
Woodman hasn't offered many viable solutions to this dilemma. Last November, The Wall Street Journal reported that GoPro would launch consumer drones in late 2015. But even if GoPro sells enough drones to match the annual sales of market leaders DJI Innovations and Parrot, it would only account for less than 6% of its projected 2015 revenues. Woodman's also plans to expand the GoPro Network into a media business, but the network hasn't generated any meaningful revenues yet. Lastly, Woodman wants GoPro to expand into China, but Xiaomi and other rivals are already lowering price expectations there.
So, what should GoPro do?
Investors should remember that Woodman's massive salary consists of GoPro stock, not cash. This means that he remains personally invested in GoPro's success, and that the stock's 30% year-to-date decline also took a big bite out of his finances. The actual distribution of the $284.5 million in stock will also occur over several years.
Moreover, losing Woodman after GoPro only launched one product line would be akin to Apple replacing Steve Jobs after the launch of the iPod. Granted, Woodman's next GoPro products probably won't be as successful as Apple's iPhone or iPad, but I'd personally like to see what new products he can develop.
What Woodman should do, however, is hire more industry veterans to diversify its top line beyond action cameras. Woodman already hired several major names in tech and media over the past year. Last June, GoPro hired former Skype CEO and Microsoft (NASDAQ:MSFT) executive VP Tony Bates as its president. GoPro also hired Adam Dornbusch, the former business development head of Current TV, as its head of programming. Veterans like that can help GoPro build its brand beyond the limits of Woodman's cult of personality.
The bottom line
GoPro investors shouldn't overreact to the loud headlines declaring that Woodman's stock bonuses topped those received by Apple's Tim Cook or Microsoft's Satya Nadella.
It's all stock and will be paid out over several years, which means that it won't have much impact on GoPro's quarterly earnings. GoPro has had a rough year, but it's still a young company with a strong brand. For that brand to mature, it needs its visionary CEO to stay in charge for the foreseeable future.