Photographer: Patrick T. Fallon/Bloomberg

Snap’s IPO Investors Will Have No Say on Executive Pay

  • New shareholders can attend annual meetings, not vote
  • Co-founder Evan Spiegel’s total pay was $2.4 million in 2016

Investors buying into Snap Inc.’s much-anticipated initial public offering won’t have any say on how much the company pays its executives.

Snap will not be subject to the say-on-pay provisions of the Dodd-Frank Act, the company said in an updated deal prospectus Thursday. The act was put in place after the 2008 financial crisis to help investors throttle outsized pay packages by requiring advisory votes on pay plans.

Snap’s avoidance of this rule is another example of how much control co-founders Evan Spiegel and Bobby Murphy have over the business -- and how little they’re ceding to public investors. The self-styled camera company filed for its IPO last week with a unique feature -- it could be the only listing of non-voting stock on a U.S. exchange. Spiegel and Murphy will hold majority voting rights after the company goes public, according to the prospectus.

Last year, Spiegel got $503,205 in salary, Snap’s initial filing shows. His salary will be reduced to $1 on the effective date of the registration statement. Total pay, which includes a $1 million bonus and $890,339 in security services, was $2.4 million last year.

Chief Strategy Officer Imran Khan made a total of $5.5 million, including $241,539 in salary and a $5.24 million cash bonus for 2016. In 2015, after joining the company, he was awarded restricted shares valued at $145.3 million.

“If you are going to tap the public markets for capital then you should have a voting structure to hold those folks accountable,” said Aeisha Mastagni, a portfolio manager at California State Teachers’ Retirement System. “It’s an alarming trend in the tech space. If you’re not going to give anyone a say, then stay private.”

CalSTRS is a founding member of the Investor Stewardship Group, a cohort of firms like BlackRock Inc. and Vanguard Group Inc. that represent about $17 trillion in assets under management. The group aims to create basic standards of investment stewardship and corporate governance at U.S. listed companies. ISG is already pushing for a ban on dual-class shares, according to a Wall Street Journal report.

Voting Rights

Snap will also not provide traditional proxy statements that include information like executive compensation, according to the latest filing. That data will instead be in the company’s annual report.

Holders of Snap’s Class A common stock, the type that will be sold in the IPO, will have no voting rights. While they will be allowed to attend annual shareholder meetings, they cannot bring matters before the meeting or nominate directors. Class A holders will be able to submit questions to management and will receive annual reports and other information at the same time as other shareholders.

Class B holders have one vote per share, according to the prospectus. Spiegel and Murphy’s Class C shares will give them “the ability to control the outcome of all matters submitted to our stockholders for approval.”

Risk Taking

The Dodd-Frank Act’s say-on-pay rule was rolled out in 2011 to combat compensation packages that are too large or encourage excessive risk-taking. It gives shareholders the opportunities to speak out on pay at least every three years.

Snap also qualifies as an emerging growth company under the Jumpstart Our Business Startups Act, which means it doesn’t have to let investors participate in advisory votes on executive pay. That exemption can last up to five years after the IPO, or until the business reaches $1 billion in annual revenue or issues more than $1 billion in non-convertible debt over a three-year period. At that point, a company becomes subject to more rigorous disclosure rules and must hold say-on-pay votes.

Snap says it is not subject to certain proxy rules because its non-voting, Class A stock will be the only shares registered under parts of the Securities Exchange Act of 1934, a regulation that governs participants in arenas such as the public markets.

On Snap’s impending IPO roadshow, when it pitches its wares to investors, the company and its advisers will need to persuade potential investors that they should trust executives to make the right decisions. Snap is a money-losing company with a young business model, posting a net loss of $515 million last year on revenue of $404 million.

“We believe that the early stage of our advertising business has resulted in high rates of revenue growth due to a low initial base, which has masked this seasonality,” the company said in its new filing. “Much of our revenue growth to date has been driven by onboarding new advertisers and developing new advertising products and delivery and measurement capabilities.”

Snap filed with an initial size of $3 billion, a placeholder amount used to calculate fees that may change. It will seek to raise as much as $4 billion in the IPO, people familiar with the matter have said, for a market value of as much as $25 billion. The company plans to use proceeds from the offering for general corporate purposes, which may include acquisitions, the filing shows.

(An earlier version of this story corrected the spelling of Imran Khan in the fifth paragraph)

(Updates with emerging growth provision under ‘Risk Taking’ sub headline.)
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