It pays to be a member of Twitter's board.
The soon-to-IPO social network disclosed that outside directors, who were never previously paid in cash for their services, will soon be the beneficiaries of a generous equity incentive plan that comes with up to $16 million in cash and stock.
Twitter's board consists of seven men, six of whom are non-employee directors eligible for a payday of up to $8 million in cash and stock for any given year of service on the board, or up to $16 million during the year of initial service. The outside directors include co-founder and former CEO Evan Williams, who already holds a 12 percent stake in Twitter, and co-founder and Chairman Jack Dorsey. Peter Chernin, Peter Currie, Peter Fenton, and David Rosenblatt are the other non-employee board members.
The company has left out the exact terms of the awards, meaning it could be years before board members actually see their millions materialize.
"Grant-date fair value...is the value of all long-term incentives awarded by the company to its outside directors," Peter Adriaens, a professor of entrepreneurship at the University of Michigan's Zell Lurie Institute for Entrepreneurial Studies, told CNET. "The stock awards don't indicate when they vest or over what period they are exercised, and don't detail what type of options are included, nor what pricing model was used to value the options. So it could be up to $800,000 a year for some board members over 10 years, or less depending on the performance of the stock. The cash-settled awards are cash equivalents of stock, with similar restrictions, but could double annual compensation."
Still, Twitter is paying more than Facebook. The bigger social network pays most of its outside board members $50,000 a year. Facebook's newest board member, Susan Desmond-Hellmann, was given a $50,000 annual retainer fee and 20,000 restricted stock units valued around $530,000 at the time.
Twitter's disclosure, first spotted by Footnoted, is listed on page 135 of the S-1 and included in full below.
Our 2013 Plan provides that all outside directors will be eligible to receive all types of awards (except for incentive stock options) under our 2013 Plan. In connection with this offering, we intend to implement a formal policy pursuant to which our outside directors will be eligible to receive equity awards under our 2013 Plan. Our 2013 Plan provides that in any given year, an outside director will not receive (i) cash-settled awards having a grant-date fair value greater than $4,000,000, increased to $8,000,000 in connection with his or her initial service; and (ii) stock-settled awards having a grant-date fair value greater than $4,000,000, increased to $8,000,000 in connection with his or her initial service, in each case, as determined under GAAP.[Via The Wall Street Journal]
Correction, 4:00 p.m. PT: The post has been corrected to reflect that the maximum value of awards in any given year is $8 million, or $16 million in the year of initial service. It has also been updated with a quote from Peter Adriaens on the meaning of grant-date fair value.