Despite not being a household name, Steve Huffman, CEO of Reddit, has a compensation package to rival those of the biggest names in Silicon Valley. This reflects a trend among tech companies: lower salaries but huge stock options that can be worth multi-millions. At a salary of $14,000 per year, Huffman earns less than the average American.
Snap CEO Evan Spiegel and Pinterest CEO Ben Silbermann, for instance, have made similar compensation arrangements. Both take annual salaries of $1 each but have stock options that cumulatively valued their wealth at $4.4 billion and $1.6 billion, respectively. This ensures their focus is on growing the company's value.
Twitter CEO Jack Dorsey and Facebook’s Mark Zuckerberg also receive $1 salaries, instead opting for massive stock options. This shifts the focus from getting a hefty paycheck to ensuring the company grows in value. Consequently, it's a strategy that has soared the net worth of these CEOs to eye-catching figures.
Comparatively, this approach is not as common among older technology companies. Microsoft CEO Satya Nadella, for example, received up to $44.3 million in total compensation last year, including the same base salary (only several times Huffman’s) and stock award value.
In effect, the CEOs of Reddit, Snap, Pinterest, Twitter, and Facebook prioritize long-term growth and profitability of their respective companies over their immediate remuneration. They adapted this strategy to grow shareholder’s value and adopted a compensation approach that aligns with shareholders' interests.
However, for Huffman, stock-based salaries are not new. Reddit awarded Huffman 22,244,076 shares when he returned to the company in 2015 as CEO, a job he initially left in 2009. Since then, Huffman's overall pay from Reddit has totaled a staggering $150 million.
Ahorn, a luxury lifestyle magazine, lists Huffman amongst the highest-paid tech CEOs globally, despite the minimalist salary. This is primarily due to the significant percentage of stock options in his pay and the subsequent rise in Reddit's worth.
This strategy also helps CEOs from being caught in political or social commentaries. Not prioritizing their paycheck, but unhindered dedication towards the company's long-term growth, could be seen as an approach that neutralizes critics who might otherwise critique their hefty earnings.
A parallel can be seen with Tesla CEO, Elon Musk. He rejected receiving any salary from Tesla but was awarded options that could be worth as much as $55.8 billion if all goals are met. Those options are tied to Tesla's market value reaching $650 billion among other metrics.
Unsurprisingly, these CEO compensations have sparked debates among stakeholders given the disparity between the CEO's earnings and the average worker's pay. It has highlighted questions around the ethics of such huge compensation figures, especially in the wake of a pandemic-ridden volatile market.
For these CEOs, however, the strategy is clear: they believe in their companies' long-term success. Their earnings are tied to the growth of the company, which motivates them to ensure they perform optimally.
Yet, this apparent sacrificing of immediate remuneration for potential long-term wealth does not resonate with everyone, especially those who regard these tactics as adding to wealth disparity. The lower the CEO's pay, the greater the gap between the highest and lowest paid within the same company.
Nevertheless, from the perspective of these tech companies, this remuneration strategy for top CEOs underpins their belief in the company's growth potential. As such, tying most of the CEO's compensation to stock options represents faith in the company’s strategy and future market performance.
Meanwhile, it offers investors the assurance that the CEO's actions and motivations are aligned with the company's development. It eliminates the fear that CEOs might take excessive short-term risks to inflate their salaries. Instead, they shoulder the risk alongside the company's investors.
At a time when inequality is a global concern, remuneration practices at corporations attract immense scrutiny. Tech companies, especially start-ups, are inventing novel ways of compensating executives that seem to address some of these concerns.
Perhaps this could serve as a learning point for other industries to review their remuneration systems. While the system isn't flawless and has its detractors, it successfully aligns CEO's compensation with the companies’ growth.