By Paul Hodgson – CCO and Senior Research Associate
[This blog first appeared on Forbes.com]
The compensation committee report in Facebook’s proxy statement is pretty standard for an internet IPO. Cash compensation at the lower quartile of its peer group, total compensation, including equity, at the 99th percentile….
Mark Zuckerberg earned about a million dollars in cash during 2011, and received no additional equity compensation “because our compensation committee believed that his existing equity ownership position sufficiently aligns his interests with those of our stockholders.” Which is an understatement of stupendous proportions.
But then, Mr. Zuckerberg already has 120,000,000 stock options that were awarded on November 8, 2005 and are fully vested.
That’s more stock options than I ever remember ever having seen ever awarded to a single individual ever on one day.
What happened there? He awarded himself stock options over his own shares?
The exercise price of these options is 6 cents.
A note to the table indicates that Mr. Zuckerberg is exercising half of them today.
In connection with our initial public offering, Mr. Zuckerberg will exercise this stock option with respect to 60,000,000 shares of Class B common stock and will then offer 30,200,000 of those shares as Class A common stock in our initial public offering.
Even at the initial asking price of $38 that’s a profit of $2,276,400,000. Yes, those zeroes are correct. And the profit could be bigger if the stock price increases.
No wonder he’s having to sell some to pay his tax bill.
But the stock options are not Facebook’s only governance issue, as I have already said.
GMI Ratings has not given a governance grade to Facebook yet but now the IPO has gone forward we will be doing so, and let me tell you, on the record thus far it will not be a good one.