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

http://www.fool.com/investing/general/2013/10/29/did-facebooks-mark-zuckerberg-earn-his-2-billion-p.aspx

Alex Planes
October 29, 2013

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 t