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Fitbit's CEO Took a Big Pay Cut Last Year

By Evan Niu, CFA - Apr 14, 2016 at 3:15PM

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Executives got a big payday in 2014, but less so in 2015.

Blaze. Image source: Fitbit.

Shares of fitness tracker specialist Fitbit (FIT) have had a poor year, with the stock down over 40% year to date. The freshly public company is under pressure to maintain its dominant position in the wearables market, defending its turf from new entrants and smartwatches that threaten to cannibalize the stand-alone fitness tracker category. However, shares jumped yesterday following some positive sentiments on the Street.

Ahead of its annual shareholder meeting next month, Fitbit has now filed its proxy statement for 2016. It looks like co-founder and CEO James Park took a big pay cut last year.

Park isn't alone
The main reason for the cut was that Park and a few other executives were granted sizable option awards in 2014. Both co-founder and CTO Eric Friedman and Park received $7.5 million in option awards.

 

2014 Total Compensation

2015 Total Compensation

CEO James Park

$7.8 million

$1.9 million

CTO Eric Friedman

$7.8 million

$702,000

CFO William Zerella

$5 million

$878,000

Data source: Proxy statement. Figures rounded.

Park's base salary more than doubled, though, to $525,000 in 2015. Going forward, Park's annual salary is $600,000 and Friedman's annual salary is $300,000.

Alta. Image source: Fitbit.

Of course, Fitbit's declining share prices will also negatively affect the value of those option grants that boosted the executives' reported 2014 compensation. Most of the shares related to the 2014 grants are not yet exercisable. As of the end of last year, Park and Friedman had 540,000 shares that were exercisable, and 2.7 million shares that were not exercisable related to the 2014 grant.

It's also worth noting that Fitbit is planning on increasing the amount of stock-based compensation that it awards employees. Total stock-based compensation was $41 million last year, which was a significant increase from 2014 mostly due to the IPO. But the company's outlook calls for fiscal 2016 stock-based compensation of $85 million to $95 million.

One of these days
Right now, Fitbit continues to enjoy its first-mover and top-dog advantages in the wearables market, but smartwatch competition is looming and Fitbit is keenly aware of this. That's precisely why the company continues to add new features and focus heavily on fashionable designs as a defensive strategy.

Basic fitness trackers used to be Fitbit's bread and butter, but the higher-end devices including the Charge, Charge HR, and Surge now account for nearly 80% of sales. Fitbit will have its work cut out to defend against smartwatches, but I still have my eye on it. One of these days, the valuation might be tempting.

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