CEOs Are Starting to Bank Billion-Dollar Bonuses With IPOs
(Bloomberg) -- It’s a good time for founders in China to take their startups public, at least by one measure.
Chief executive officers are beginning to get ten-figure bonuses with their initial public offerings. In the latest example, the CEO of Shanghai-based Pinduoduo Inc., received at least $1 billion of stock without any performance hurdles as his e-commerce company prepares for a U.S. IPO. Lei Jun, the head of Beijing-based smartphone maker Xiaomi Corp. saw a $1.5 billion payday, with no strings attached, when his company went public in July. When JD.com Inc. went public in 2014, it incurred $591 million of costs from a stock grant to its chief.
The concept of an IPO bonus that’s not tied to future performance metrics is unusual because a public offering is already a way of compensating CEOs and their lieutenants. Founders like the heads of Pinduoduo, Xiaomi and JD already hold substantial stakes and would become billionaires even without the extra payout. That raises concerns that such rich paydays are coming at the expense of future shareholders, and could push startups to take on public investors even if they’re not ready.
“Generally we regard any pay package that doesn’t align pay with performance not in the best interest of shareholders,” said Michael Cheng, vice president of ESG Research at MSCI Inc. “Share awards that don’t come with performance metrics defeat the whole purpose of equity retention policies, which are meant as incentives to executives to create value for the company and all shareholders.”
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