Excessive Director Compensation at Facebook?
In 2014, a shareholder derivative suit was filed in the Delaware Courts alleging that the Facebook Board of Directors violated their duties to their shareholders by paying its nonexecutive directors 43% more than “peers,” despite its net income and revenues being 66% and 49% lower, respectively, than its peers. The peers named in the suit included Adobe, Amazon, Cisco, eBay, EMC, LinkedIn, Netflix, Qualcomm, SAP AG, The Walt Disney Company, VMware, and Yahoo!, Inc. The suit noted that in 2013, the Facebook Board paid its nonexecutive members an average $461,000 per director, 43%, or $140,000 higher than the average per director compensation in Facebook’s Peer Group. It further noted that the Board is free to grant its board members an unlimited amount of stock as part of their annual compensation under a 2012 equity incentive plan, with the only limit a $2.5 million share limit per director in a single year (worth approximately $145 million at the time of filing). The Facebook Board at the time consisted of eight individuals, six of whom were “outside” (i.e., nonemployee) directors including Lead Independent Director Donald Graham, and Directors Peter Thiel, Marc Andreessen, Reed Hastings, Erskine Boles and Desmond-Hellman. Inside directors included founder and CEO/Chairman Mark Zuckerberg and COO Sheryl Sandberg. The lawsuit alleged that all of the Directors approved the compensation and all of the nonexecutive directors received the compensation. The lawsuit claimed breach of fiduciary duty, waste of corporate assets, and “unjust enrichment.” The issue of director compensation accelerated in late 2014, when Jan Koum, WhatsApp cofounder and CEO, joined the board and received a salary of $1, but stock awards worth over $1.9 billion, representing a sign-on award of $25 million restricted stock units when Facebook acquired WhatsApp. However, Facebook CEO Mark Zuckerberg allegedly approved the stock grants in a written affidavit, rather than at a stockholder meeting—and with 60% of the voting power, he had the ability to approve whatever he wanted. The question remains as to whether Mark Zuckerberg failed to comply with Delaware corporate law, where the company is incorporated, in circumventing shareholders by signing off on directors’ stock grants instead of presenting it at a shareholders’ meeting.
- Do you believe that directors have the right to approve their own compensation without taking it to shareholder vote? Please justify your answer and explain what might or might not warrant this.
- Did Zuckerberg break the law by not bringing the compensation issue up in a stockholder meeting?
- What is an appropriate level of director pay? Is the proposed compensation in the Facebook situation excessive? How might this be determined?
- Institutional Shareholder Services, a proxy advisory firm, has noted that there is “too much work and too much time” required of directors; could this justify higher director pay?
- research topic :Excessive Director Compensation at Facebook?
- Research/find a minimum at least four (4), preferably five (5) or more, different peer-reviewed articles on your topic from the University of the Cumberlands Library online business database. The article(s) must be relevant and from a peer-reviewed source. While you may use relevant articles from any time frame, current/published within the last five (5) years are preferred. Using literature that is irrelevant or unrelated to the chosen topic will result in a point reduction.
- Write a four (4) to five (5) page double spaced paper in APA format discussing the findings on your specific topic in your own words. Note – paper length does not include cover page, abstract, or references page(s).
- Structure your paper as follows:
- Cover page
- Overview describing the importance of the research topic to current business and professional practice in your own words.
- Purpose of Research should reflect the potential benefit of the topic to the current business and professional practice and the larger body of research.
- Review of the Literature summarized in your own words. Note that this should not be a “copy and paste” of literature content, nor should this section be substantially filled with direct quotes from the article. A literature review is a summary of the major points and findings of each of the selected articles (with appropriate citations). Direct quotations should be used sparingly. Normally, this will be the largest section of your paper (this is not a requirement; just a general observation).
- Practical Application of the literature. Describe how your findings from the relevant research literature can shape, inform, and improve current business and professional practice related to your chosen topic.
- Conclusion in your own words
- References formatted according to APA style requirements