The board of directors reduced the base salaries of two founders Vlad Tenev and Baiju Bhatt to $34,248 from $400,000 in April, the average salary of a US employee as of 2019. On the one hand, the decision fits with the company’s image. But the two men are unlikely to miss the extra $366,000. Thursday’s Robinhood (HOOD) IPO left them worth $2.5 billion each, with more potential gains from stock awards ahead.
At its opening price of $38, Robinhood has a valuation of $32 billion. Shares were weak in early trading, and Robinhood’s unique method of issuing a large number of shares to retail traders may add to the volatility. If the price falls below $30, the founders’ stake would be worth less than $2 billion.
Tenev, the 34-year-old CEO, and Bhatt, the 36-year-old Chief Creative Officer, both own 7.9% of the company’s stock, according to the company’s prospectus. The company has three classes of shares, and the two men hold Class B shares, which have 10 times the voting power of A shares. Because of their Class B interests, Bhatt has 39% of voting control and Tenev has 26.2%, meaning that they have full control over the direction of the company when they vote together.
In 2020, Tenev received a total compensation of $767,000, including the $400,000 base salary and other expenses, including an executive medical plan and $343,000 for personal security services. The company also gave Bhatt an executive medical plan and paid $472,000 for his personal security services.
The reason the board cut the base salary of the two founders is to shift their pay even more towards stock awards. Based on the offering price, the founders were also eligible for an additional 2.77 million shares worth approximately $105 million, due to a limited stock grant awarded in 2019.
But the really big payouts could come in the future, as long as the company’s stock price rises. In May, the board approved a plan that pays out more shares based on the share price. It starts at a share price of $120 and tops out at $300. Tenev would get 22.2 million shares when it hits $300, or a total payout of at least $6.7 billion at those levels. Bhatt would get 13.3 million shares, or $4 billion, if the price reaches $300. If it doesn’t get to at least $120, none of those prizes will be available.
Write to Avi Salzman at email@example.com