How Slack’s Executive Pay Structure Will Evolve Post-IPO
In Slack’s S-1 report, they make it clear that they intend to prioritize pay for performance as stated:
“Although we do not have a formal policy with respect to the grant of equity incentive awards to our executive officers, we believe that equity grants provide our executives with a strong link to our long-term performance, create an ownership culture, and help to align the interests of our executives and our stockholders”.
Slack’s S-1 does not disclose their own selected peer group for compensation. Utilizing CGLytics’ Peer Composer tool, a hypothetical peer group from a data universe coverage of over 5,500 global companies was constructed for Slack.
As the company is regarded as an enterprise technology company, parameters were defined to select comparable companies’ as reference points, namely 8×8 Inc. Using this approach, the following peer group of 20 companies was constructed:
Selected Peer Group for Slack:
|Pegasus Systems, Inc.||Nutanix, Inc.|
|Brightcove, inc.||Blackline, Inc.|
|8×8, Inc.||PROS Holdings, Inc.|
|Agilysys, Inc.||Benefitfocus, Inc.|
|LivePerson, Inc.||Instructure, Inc.|
|Synchronos Technologies, Inc.||MobileIron, Inc.|
|Yext, Inc.||Telenav, Inc|
|Cloudera, Inc.||Varonis Systems, Inc.|
|FourScout Technologies, Inc.||Q2 Holdings, Inc.|
|FireEye, Inc.||Model N, Inc|
|Box, Inc.||Carbon Black, Inc.|
|FireEye, Inc.||Model N, Inc.|
|A10 Networks, Inc.|
Source: CGLytics’ Peer Composer
Although Slack’s product can be regarded as novel, 8×8 is regarded as a suitable peer due to both companies specializing in providing communication solutions to corporates.
As displayed in the chart below, this hypothetical peer group was used to gain insights into the average CEO remuneration breakdown, benchmarked against key performance indicator such as TSR, EBITDA and free cash flow.
The groups free cash flow and EBITDA appear somewhat of a divergent relationship where as TSR has remained relatively constant. The stacked bar chart above breaks down the average CEO group remuneration for each year and identifies LTI as the biggest contributor to CEO pay. Moreover, as the above bar chart illustrates, there exists in total seven components of pay which Slack may consider taking into consideration.
The components are:
– Base Salary; generally cash compensation levels for executives will increase after the IPO in somewhat of a “re-balancing act” to account for the equity offered up in the IPO. This is particularly true for venture backed start-ups where the majority of cash at hand will be spent on the operations of the business. Slack listed their 2018 fiscal salary compensation for their CEO as USD 356,952, comparatively, the average base salary for the peer group was USD 437,130.
– STIs; short-term incentives are typically benchmarked using operationally based performance measures and are subject to annual change. The compensation committee will need to take into consideration the specific company strategy as well as market conditions when determining what these will be.
– LTIs; these are most commonly equity-based incentives which take the form of stock options, restricted shares/RSUs and performance share plans. Both before and following an IPO, most companies rely on stock options as a means to incentivize the executives to drive the company share price above the exercise price. After a few years when companies have established themselves in the marketplace they tend to introduce a cyclical executive LTI plan. Slack has already detailed a “2019 Stock Option and Incentive Plan” which will allow the company the authority to grant equity to their executives.
Since Slack commenced trading, its share price has failed to gain momentum. It remains to be seen precisely how Slack’s pay structure for its executives will evolve post-IPO, and if future changes to the company’s executive incentive plan will push towards share-price based KPIs in order to swing the company’s low momentum out of its current doldrums.
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