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Did Facebook's Mark Zuckerberg Earn His $2 Billion Payday?

CEOs of public companies aren't like the rest of us. They have to oversee hundreds or thousands of employees, manage shareholder expectations, and develop the strategies that can produce long-term growth in a competitive world.

That's why CEOs are often handsomely paid for their efforts. But these plum pay packages aren't always justified -- and if an executive is milking his or her company for more than what is deserved, investors need to know.

Source: Wikimedia Commons.

Today, we'll look at Facebook (NASDAQ: FB  ) CEO Mark Zuckerberg's compensation for 2012. Executive compensation is made up of several components, including base pay, incentives and bonuses, perks, stock options, and -- this is often overlooked -- any dividend payments on shares owned.

Stock options have become an increasingly important part of executive compensation in recent years, and we'll look at two types: options granted during the year, which can be realized at a later date; and options exercised from awards made in years past, which are previous promises of shares that were claimed during the year. An option is simply the right to buy shares at a predetermined price at a predetermined time. If you'd like to learn more about how options work, check out our Foolish investing wiki by clicking here (link opens in a new window).

Here's how Zuckerberg's compensation breaks down for 2012:

  • Base pay: $500,000
  • Bonuses: $266,101
  • Perks: $1,221,408
  • Options granted: $0
  • Options vested or exercised: $2,276,677,500

Right away, we can see the reason why Zuckerberg was GMI Ratings' highest-paid CEO for 2012. A $2 billion option payday is massive by any measure. But how does that stack up against Facebook's performance in 2012? Let's take a look.

To put this in another context, Facebook went public in mid-2012 at slightly more than a $100 billion valuation, with shares valued at $42 apiece at the opening bell. By the year's end, its share price had been reduced to just $26.65, a decline that left the company with a market cap of roughly $65 billion. For every $1 Mark Zuckerberg earned in 2012, Facebook's shareholders -- including Zuckerberg, who still owns more than 485 million shares -- lost $12.59 in aggregate shareholder value! Don't feel too bad for him, though, since his stake is actually worth about $4 billion more today than it was at the start of Facebook's IPO.

It's almost mind-boggling to consider just how much Mark Zuckerberg made compared to the company he founded, isn't it? But this doesn't paint a complete picture. The shares Zuckerberg exercised in 2012 were first awarded in 2005, shortly after the college-only social network expanded to include high school students. It was still a very young company, less than two years old, and very much in rapid-growth start-up mode. At the time, MySpace was the hottest name in social networking, and it had just been acquired by News Corp. for $580 million. Zuckerberg's huge award, at a time when Facebook was trailing well behind MySpace in total users, was simply part of the small company's recognition of his early leadership efforts rather than a guaranteed billion-dollar payday. He's almost certain to never approach this total again, since there are no more outstanding stock options for him to exercise, and any sales he makes out of his current share hoard won't be recorded as compensation.

If we look at Zuckerberg's compensation in terms of only cash and perks, we find he earned nearly $2 million in 2012. That's rather modest for the CEO of one of the world's most well-known and closely watched tech companies, even if Facebook isn't necessarily among the largest companies by revenue or cash flow. If Zuckerberg earns a similar amount in 2013, he'll have made $1 for every $27,000 the company created in new shareholder value from the start of 2013 to today. Of course, since Zuckerberg owns more than 485 million shares (out of 2.44 billion outstanding), that means he would have created about $5,400 in shareholder value for himself for every $1 he might be paid this year.

No matter which way you slice it, 2012  was a very good year for Mark Zuckerberg, and no matter how much he earns in compensation this year, it looks like Facebook's CEO will be amply rewarded for his efforts in 2013 as well.

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Read/Post Comments (4) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 30, 2013, at 3:52 PM, wannalivelife wrote:

    It's a great article to attract eyeballs with the title and the thesis, but the difference here is that Zuckerberg has taken a college project to > 1 billion user base, and also took the company through various successful rounds of funding. Also, when a CEO is also a founder of a business, compensation should not include already owned stock. It should be evaluated on the basis of new stock grant made by the board to the CEO. On that basis, there are many more CEO's who are being paid more obscene money than Zuckerberg.

  • Report this Comment On October 30, 2013, at 3:53 PM, wannalivelife wrote:

    Oops, I meant "when a CEO is also a founder of a business, compensation *evaluation* should not include already owned stock".

  • Report this Comment On October 30, 2013, at 5:04 PM, miteycasey wrote:

    "when a CEO is also a founder of a business, compensation *evaluation* should not include already owned stock"

    That is the answer. If you remember he deferred many of his stocks when they were low and held them.

  • Report this Comment On October 30, 2013, at 5:18 PM, XMFBiggles wrote:

    @ wannalivelife and miteycasey -

    These shares were granted as options in 2005 and are accounted for on Facebook's DEF 14A as executive compensation, which is why they're included here. I did take pains to explain why this is atypical and should not be expected in the future.

    - Alex

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