DoorDash Inc. and Palantir Technologies Inc. gave special stock awards worth hundreds of millions of dollars in 2020 to their longtime chief executives, two of the most significant compensation packages ever awarded to corporate leaders.
The chief executive officer and co-founder of Palantir, Mr.Alexander Karp, a data analysis company that went public in September 2020, received compensation valued at $1.1 billion last year. According to the company’s annual proxy statement, the payment includes $296 million in restricted stock and $798 million options.
According to securities filings, the meal-delivery company Doordash awarded its co-founder and CEO Tony Xu restricted shares valued at more than $400 million shortly before DoorDash went public in December.
Both awards far exceed the pay packages that were received by CEOs of S&P 500 companies in 2020. According to the Wall Street Journal analysis, the median pay for S&P 500 CEOs in 2020 was $13.4 million, and the most significant compensation package was valued at about $211 million.
Neither of the companies is in the S&P 500 index. Both the firms are unprofitable. In their filings, the companies described the awards as tools to keep their CEOs on the job and motivated to increase their value over many years.
“DoorDash is a relatively young company and has an ambitious vision; the board has structured Tony’s compensation to maximize the incentive towards these long-term goals,” the company told the Journal.
Although Palantir declined to comment on the same.
Mr. Xu’s equity award consists of around 10.4 million confined shares, roughly 3.5 percent of Class-A shares outstanding as of the end of April. They will only vest or become his entirely if the company’s share price rises notably from current levels, between 25 percent and more than threefold. He can’t earn them until June next year.
Mr. Karp does not need Palantir’s share price to hit specific levels to receive his award. The firm’s successful stock listing, which Palantir completed less than two months after receiving the equity grant, unlocked the prize. Starting in August, 2.5 percent of the options and restricted stock will vest each quarter that he is CEO for over a decade.
Both the men are already significant shareholders in their own companies and have massive control through supervoting shares that they own.
Mr. Xu holds about 5 percent of DoorDash’s shares outstanding but 71 percent of its voting power. Mr. Karp holds about 5.1 percent of Palantir’s voting power and has voting accords with his co-founders.
Mr. Xu, 36 years old, started the company with his Stanford University classmates in 2013. Since then, DoorDash has enjoyed a boom in restaurant-delivery orders during the pandemic. It gained a revenue of $2.9 billion during the last year but announced a loss of 461 million dollars.
Mr. Karp, 53 years old, helped found the firm in 2003 with the help of financial backing from PayPal Holdings Inc. co-founder Mr Peter Thiel. Palantir develops data-mining software used by various governments and corporations. It had enjoyed a revenue of $1.1 billion in the last year and reported a total loss of $1.2 billion.
For Mr. Xu to receive the total award, DoorDash’s stock would need to surge, and the value of the grant will fluctuate along with the company’s share price. To receive 100 percent of the award, the stock price has to average at least $501 for the next six months before late November 2027. At that price, the entire prize will be worth $5.2 billion.
“Our board of directors believe that if these stock-price goals are achieved, it will result in a return to our stockholders well over market norms for comparable technology companies,” the company stated in their proxy.
DoorDash’s shares closed at $149.83 on Wednesday.
Today—considering that DoorDash’s stock price, volatility, and the chance that its stock-price targets will be met—the total award could be worth $1 billion, said Mr.Andy Restaino, the founder of Technical Compensation Advisors Inc., a Bellmore, New York., consulting company.
“Mr. Karp’s award of Palantir options and confined stock is worth $3.9 billion as of today using standard equity-valuation techniques”, Mr. Restaino stated. Another valuation firm’s estimate of Mr. Karp’s chances was similar.
According to executive-pay consultants, more companies are crafting similar pay packages for their CEOs due to a milestone stock-option grant. Earlier this year, Mr. Elon Musk received full title to a tranche of options worth about $32 billion.
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