In case it wasn't clear yet, Twitter (NYSE:TWTR) is in full-blown turnaround mode. That may sound odd for a company that went public just under two years ago, but it's appropriate considering Twitter has revisited its IPO price and failed to deliver the levels of user growth investors were expecting.
Twitter has confirmed that it plans on laying off upwards of 336 employees, which amounts to 8% of its total headcount. The cuts will also include Vine's last co-founder, who was still at the company following the 2012 acquisition, after the other two left already. The company says the move is intended to organize Twitter around "top product priorities" and to increase efficiency.
The company says it expects to incur $10 million to $20 million in cash expenditures related to severance costs, with total restructuring expenses of $5 million to $15 million. This range is lower than the cash expenses, since Twitter will be able to reverse stock-based compensation expenses for unvested equity grants. Most of these charges are expected to be recognized in the fourth quarter.
Twitter didn't specify how much it expects to save on an annual basis from the move.
Just days after the layoff announcement, Twitter announced that it had successfully poached Omid Kordestani from Alphabet to be its new executive chairman. Kordestani was previously Google's chief business officer and was its 11th employee, so this is a big score for Twitter.
He was also Google's highest-paid executive in 2014, bringing home $130 million. But amid Google's transition to a new corporate structure with Alphabet at the top as a holding company, Kordestani's position was marginalized since each subsidiary would have distinct management teams.
The executive has long been credited with helping Google put together its revenue model and bringing the search giant to profitability in its early days. Without a doubt, Kordestani is quite the poach, but he also comes with a commensurately hefty price tag.
As executive chairman, Kordestani will have a base salary of $50,000, but he will receive a one-time grant of options to purchase 800,000 shares of Twitter that will vest over the next four years. He will also receive 400,000 restricted stock units that will vest based on meeting certain performance targets. All said, Kordestani's compensation package is worth nearly $12 million.
The Foolish bottom line
At a time when excessive executive compensation is broadly under fire, it might seem brash to hire a new chairman for what could be about the same amount as firing over 300 engineers. But considering what Kordestani had to forfeit in terms of unvested equity grants at Alphabet (about 84% of his 2014 equity awards), Twitter's offer had to be quite compelling for him to even entertain the idea.
Additionally, most of the costs associated with those engineers Twitter is laying off are cash salaries, while most of the costs associated with poaching Kordestani are non-cash stock-based compensation. Although Twitter is taking an initial cash hit from the restructuring, it won't have to pay Kordestani all that much in terms of his cash salary.
But ultimately, shareholders will still be facing a notable amount of dilution from the hire as his grants vest over time. One way or another, investors will be paying up for his services. He'd better be worth it.
Evan Niu, CFA has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.