The business-to-business (B2B) social media networking site, LinkedIn, had its initial public offering on May 19, 2011. There has been much media coverage of LinkedIn’s IPO, and we thought it would be of interest to understand the executive compensation package of LinkedIn’s CEO, Jeff Weiner.
Annual Cash Compensation:
According to the Prospectus filed May 18, 2011, by Linkedin, prior to its IPO, Jeff Weiner’s salary in 2010 was $250,000, and in April 2011, it was increased to $480,000. This represents a 92% increase. For 2010 business results, a 140.7% cash incentive multiplier was achieved, and Weiner’s non-equity incentive payout was $290,194 in 2011. This payout represents 116% of his $250,000 base salary where the target payout was set at 60%. If they achieve the same or better results for 2011, Weiner can expect a total annualized cash compensation of $1,036,800.
Upon being hired, Jeff Weiner was granted 3,844,512 shares at an exercise price per share of $2.32, which have a monthly vesting schedule over a 4-year period. As of December 31, 2010, he had 3,521,237 outstanding shares, of which 1,598,982 were vested. Subsequent to the IPO, Weiner sold 115,335 shares at $41.85 per share on May 24, 2011, netting him over $3.7 million. (See Form-4 filing for details http://xml.10kwizard.com/filing_raw.php?repo=tenk&ipage=7639933.)
Unless Jeff Weiner cashes in more options, he will realize over $4.7M of compensation income in the 12-month period since the IPO. Given the current stock price $103.87, as of this posting, and depending on whether LinkedIn institutes stock ownership guidelines for their named executive officer, we can anticipate Mr. Weiner’s compensation income to increase significantly. Let’s take a scenario where remaining stock options vest and are exercised. The possible gain would potentially calculated as follows:
- (Current stock price MINUS Exercise price) TIMES # of stock option = Net Gain
- ($103.87-$2.32) * 3,521,237 = $357.6M
When executive compensation packages are reviewed for competitiveness or within context of relative comparison, business practitioners will often review the tenure of the incumbent (i.e., recent hires, long tenured etc.) LinkedIn’s CEO start-up/pre-IPO compensation package was highly leveraged, comprised mostly of equity, which is typical given the business cycle of the organization as they tend to be “cash strapped”. In an IPO environment, the true compensation value the equity components are more ascertainable as illustrated in our example.
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