(http://www.autoadmit.com/thread.php?thread_id=5857103&forum_id=2/#49817984)

***Part I: Weird CEO pay***

“Meet the CEOs Who Pull In More Than $100 Million a Year,” says this Wall Street Journal headline, but that’s not quite right:

The chief executives of Hertz, Peloton and Pinterest all earned more than $100 million in 2022, topping almost every CEO in the S&P 500 including Apple’s Tim Cook, who made $99 million. Also on that list: The man who runs CS Disco, a cloud-services provider that caters to attorneys and has a market capitalization of about $500 million.

Sure okay the CS Disco guy “received $500,000 in salary plus stock options valued at $109 million” in 2022, but he “earned just under $1 million total in 2021, the year the company went public in late July.” So he pulls in $55 million a year, on average, over the last two years, not “more than $100 million a year.” But that $109 million 2022 options grant is not an annual occurrence; that’s meant to tide him over for a while. “We believe that an up-front, long-term option grant with performance-based vesting would be most motivating to Mr. Camara and would have a greater impact than an annual long-term incentive award,” said the company in 2022, when it asked shareholders to approve the grant. Getting a $109 million one-time equity award is not the same as earning $100 million a year.

Also it’s not real money: The $109 million is the calculated fair value of the options grant at the time it was awarded, but it consists of a bunch of options to buy stock at a strike price of $32 per share, and they only vest in tranches if the stock reaches a series of milestone prices starting at $150 per share and going up to $900. The stock closed Monday at $8.40 per share. If he gets the stock to $900 per share, then the package will be worth something like $3.8 billion to him, but on the other hand at $900 per share this will be a $50 billion company and he’ll be worth it. But the most likely value of this $109 million pay package is zero dollars.

****Part II: Executive Pay Accounting****

We talked in July about an article titled “Meet the CEOs Who Pull In More Than $100 Million a Year,” and I made some of these points, particularly about the CEO of “CS Disco, a cloud-services provider that caters to attorneys and [had] a market capitalization of about $500 million.” Giving the CEO of a $500 million company $100 million in annual pay seems odd,8 but of course CS Disco didn’t do that. They gave him a big one-time grant of options with a $109 million fair market value, but the options (1) have a strike price of $32 and (2) vest at prices starting at $150 and going up.9 The $32 strike price was the company’s initial public offering price, but by the time we talked about it the stock was at $8.40 and, I wrote, “the most likely value of this $109 million pay package is zero dollars.”

There’s an update today:

A big payday doesn’t always keep a chief executive employed.

Just over a year after CS Disco shareholders approved a CEO pay package worth nearly $110 million — one of the biggest of 2022 — the company’s co-founder and chief executive, Kiwi Camara, resigned with little explanation.

His departure, disclosed in a securities filing on Monday, could mean Camara loses the stock options that made up nearly all of the pay package. Camara couldn’t be immediately reached for comment.

CS Disco shares fell nearly 20% Tuesday following the disclosure. Shares in the company, which provides software used by lawyers, are trading below $8 after going public at $32 in July 2021. …

Under the terms of his employment agreement and equity awards, Camara would forfeit the 4.37 million options he received in May last year if he departed before the company met certain stock-price targets, ranging from $150 to $900 a share. CS Disco hasn’t traded above about $66 a share, a level it last reached in 2021.

Yes, right, he had a deal that would pay him a lot of money if he could get the stock up above $150, and when it became clear that that was not going to happen, he left, leaving behind a pay package that was manifestly worth zero dollars.10

In some sense that is the disadvantage of paying your CEO like this: If she takes a big swing and misses and the stock falls rather than rising, she will give up, because there is no hope of achieving the milestones that you set for her. But in another, more accurate, sense that’s why you set the milestones! You wanted the company to take a big swing and disrupt its industry, and if it doesn’t work out you don’t want the CEO sitting around comfortably collecting a big check.

(http://www.autoadmit.com/thread.php?thread_id=5857103&forum_id=2/#49818131)