Posted: March 2, 2021
Almost every week there are a handful of private companies that make the decision to “go public” through an Initial Public Offering (or IPO). This is an extremely exciting process where a private company offers shares of stock to the public for the first time in a new stock issuance. This is beneficial for the company because they use the new stock issuance as a way of raising enormous amounts of capital so that they can continue to expand. It’s also beneficial for investors because they then get a chance to invest in a new and exciting business. Most importantly, this is a very big moment for the company’s founders and leadership as they get to see the fruits of their labor. This article will take a look at what happens to CEO compensation when a company goes public. CEOs and IPOs It's common knowledge that businesses undergoing an initial public offering frequently get a large influx of cash from investors of all kinds so that the business can continue to grow and improve on it's functions and services. What is not as well known is how these IPO events can affect the wealth and compensation of a company's executives, namely the CEO guiding the company through the process of becoming public. When the CEO of a private company successfully takes their company public they often get a major boost to their own compensation in addition to the increase in their company's net worth. That’s because, when a private company goes public, the shares of stock that the executive team (and CEO) hold become tangible. The percentage of the company that they own will now be real shares that are traded on a stock exchange whose prices will fluctuate. Their success as managers of the company will correlate with a rise in the share price and a failure will correlate with a falling price. Often, there is also a cash or stock incentive (a bonus) awarded upon completion of a successful IPO. This was the case for Evan Spiegel, the CEO & Co-founder of Snapchat. He was offered 3% of outstanding stock upon Snapchat's initial public offering, which will be paid out quarterly over the next 3 years. Additionally, taking a company public now means that the CEO and executive team will have more responsibility. They will receive more scrutiny from the public, will have to answer to a board of directors, and will have to keep their shareholders’ interests in mind when making decisions. These added responsibilities often warrant an increase in compensation, and an Executive Compensation Consultant can leverage these details to negotiate a fair increase in a given executive's compensation structure. Case study: Bumble IPO The most recent example of a successful IPO launch was Whitney Wolfe Herd, the now billionaire founder of the popular dating app Bumble. Whitney Herd founded Bumble in 2014 after deciding to leave Tinder, another popular dating app that Bumble now is in direct competition with. She currently owns about 21.5 million shares of the company or about 12%. When the company went public at around $75 this was enough to instantly net Herd about $1.5 billion dollars. This turned the 31-year-old founder and CEO into the world’s youngest self-made billionaire. To learn more about maximizing executive compensation, visit our Contact Page, or contact us directly by email at email@example.com or by phone at 415-618-6060.