The NASPP Blog

As we reported in the Nov-Dec 2015 NASPP Advisor, Twitter CEO Jack Dorsey announced in October that he is giving 6.8 million shares of common stock that he owns back to Twitter, to be used in Twitter’s stock plan. I started looking into this a little further and found some interesting details.

Not So Fast

Dorsey donated shares he already owned to the plan, unlike other CEOs who have given back outstanding options or awards.  Because of this, the shares can’t simply be added to the stock plan.  For most companies, the only way to add shares reacquired from investors into a stock plan is to submit the allocation to a shareholder vote.

Why Not Contribute Awards?

It would have been less complicated for Dorsey to have agreed to the cancellation of outstanding options or awards, as other CEOs have done (e.g., see our coverage of LinkedIn CEO Jeff Weiner’s decision to forgo his stock grant in the Mar-Apr 2016 Advisor).  These shares can be added back to the plan without shareholder approval. But Dorsey doesn’t have a lot of outstanding awards to give up; he has voluntarily worked without compensation since becoming CEO and, thus, wasn’t granted any awards in 2015.  He only has 2,000,000 outstanding stock options.

Enter the Proxy Advisors and Institutional Investors

Of course, submitting the plan to a shareholder vote leads to an analysis of the plan by proxy advisors and investors.  It can even lead to a new Equity Plan Scorecard evaluation by ISS. A bit of news that caught my eye was that Twitter had to agree to prohibit repricing without shareholder approval under the plan to secure a favorable vote. Repricing without shareholder approval is a deal-breaker under the EPSC.

It’s Complicated

My first thought on reading this was “no good deed goes unpunished.” But, on second thought, I’m not sure that’s the case here.  I’m not even sure this is a good deed.  Rather than submit the proposal as a allocation of shares to their existing plan, Twitter adopted an entirely new plan for just the 6.8 million shares. The amendment to prohibit repricing only applies to this new plan; as far as I can tell, repricing is still permitted without shareholder approval under Twitter’s existing plans (under which any currently underwater options would likely have been granted).

Where’s the Urgency?

I was surprised to note that Twitter had over 110 million shares available in its 2013 plan as of December 31 and that the plan includes an evergreen provision, under which close to 35 million shares were added to the plan this year.  It looks like Twitter granted less than 25 million shares last year, so it seems hard to believe that they are going to need those 6.8 million shares anytime soon.

Which makes me wonder why Dorsey donated the shares. Was it just a publicity stunt? A way to increase employee morale? (And, if so, did it work? Better than donating the 2,000,000 outstanding options would have worked?)

– Barbara