Posted: May 26, 2022
Elon Musk’s discussed acquisition of Twitter has been one of the biggest news stories of 2022 so far. After all, it’s not every day that one man can set out to buy a 7,500-person company like he’s shopping for a new car. To secure financing for the deal, Elon pledged to cut back on the lofty executive payment packages that Twitter leadership receive. This could instantly improve the profitability of Twitter almost overnight. However, this statement is also a little rich coming from a man who is personally buying a social media site. Let’s take a look at whether or not Elon Musk was justified in criticizing Twitter’s executive pay. Elon’s acquisition Elon’s Twitter acquisition has changed directions quite a few times. To bring you up to speed, Elon Musk has secured $44 billion in financing to close the deal. Now, he’s just waiting for the results of a test to determine how many Twitter users are actually bots. The results of this test will likely either confirm the deal or prompt Elon to change his offer. If the deal closes, one of Elon’s next steps will be to slash executive pay for Twitter’s Board of Directions. Doing this will hopefully improve Twitter’s profitability and help Musk pay for the debt that he now owes. Musk has tweeted that slashing salaries could result in about $3 million in cost savings. He also stated, “Board salary will be $0 if my bid succeeds, so that’s ~$3M/year saved right there. “The Twitter board collectively owns almost no shares! Objectively, their economic interests are simply not aligned with shareholders." Twitter’s stock-based compensation for the 12 months ending Dec. 31, 2021, was $630 million, which is up 33% from 2020. Keep in mind that Twitter posted a net loss of $221 million in 2021. Is Elon justified? Elon is not wrong that slashing executive pay could instantly improve Twitter’s profitability. Not just at the Board level, either. CEO Parag Agrawal received total compensation of $30.4 million in 2021. As CEOs go, Agrawal really has yet to prove himself as an effective leader. He has also been on the job for less than a year. Considering that Twitter lost $221 million in 2021, cutting Agrawal’s compensation to just a fraction of what it is is an easy place to start. With that said, the compensation packages for Twitter’s Board and Agrawal are actually not really outside of the norm. The media CEO's compensation package is around $20 million. Twitter’s Board of Directors also earn paychecks that are comparable to rival companies. Executive compensation, in general, has ballooned to levels that are a little bit hard to comprehend. Granted, though, it’s tough for a man worth $225 billion to criticize anyone else for making too much money. If Musk really wanted to, he could raise the cash to buy Twitter 5 times over. To learn more about current events as they pertain to finance, economy, business and executive compensation, consider subscribing to the official Veritas newsletter: Compensation in Context.