Salesforce Executives Have Millions Of Reasons To Leave Amid Share-Price Plunge

Executives at Salesforce are jumping ship.

Co-CEO Bret Taylor put in his notice last week, saying he wanted to get back to his “entrepreneurial roots.” Stewart Butterfield, the founder of Slack, which was acquired by Salesforce two years ago, is leaving to spend more time with his family, according to a message viewed by CNBC. Two other members of the company brass, Gavin Patterson and Mark Nelson, put in their resignations last month.

While the company has provided little explanation for the sudden exodus, one possible reason could be hiding in plain sight. This year’s nearly 50% drop in the company’s stock price has put three years’ worth of executive stock options out of the money, possibly leaving executives with, relatively speaking, little to show for years of work.

Few companies give more stock to their executives than Salesforce. In 2021, the company’s stock compensation expense was equal to 8% of its revenue for the year, the ninth-highest ratio among S&P 500 members, according to data provided by FactSet. Moreover, within the company, 85% of executive pay that year came in the form of stock-based awards. For comparison, a 2021 Harvard Business Review article said that most executives received just 60% of their pay via stock or options.

“This is a company that the corporate governance people would have applauded,” Erik Gordon, a professor at the University of Michigan’s Ross School of Business, told Forbes.

That’s because so little of Salesforce’s executive pay was guaranteed. Instead, the company tied executive payouts heavily to its stock price performance.

But such a scheme can backfire when the stock market turns.

A company’s stock doesn’t trade in a vacuum. Stocks also mirror the market’s prevailing conditions, which financial pros refer to as “beta.” Of course, that’s usually fine when prices are soaring. No executive has ever complained about a rising stock price, whether they contributed to it or not. But when a bear market is dragging all stocks down, it’s tough to find someone to take the blame for the plunge.

That can make it difficult for companies that lean on stock prices as a measure of performance when it comes to retaining talent.

“It looks like a compensation scheme that hasn’t been effective in handcuffing employees to the company,” Gordon told Forbes.

Over the last three years, Salesforce has given executives options with strike prices that range from $154 to $215. At the current stock price of $133, the lowest it’s been since 2018, the stock would have to rise by 16% just to get to break even for the cheapest tranche. And it would have to gain 61% for options granted last year to be worth anything.

And it’s not just options. Salesforce awards executives performance-based stock that vests based on its price change relative to a group of peers. However, regardless of how it does on that measure, if the stock return isn’t positive over the period, Salesforce will only pay out a fraction of the award. Since Salesforce is among the worst-performing stocks in the S&P 500 Index this year, hitting the target looks like the best-case scenario at this point.

Add it all up, and Salesforce executives might not be jumping ship as much as cutting bait.

Salesforce didn’t respond to a request for comment.

“I doubt compensation is the only reason they’re leaving,” Gordon told Forbes. “I think compensation plays a role, but there’s more to the story. But in the bigger picture, a super bull market over the last decade has made life easy for HR managers. They just had to dangle stock in front of recruits and they’d sign up. So they haven’t had to do too much thinking. Now they have to develop plans that work in volatile stock markets, not just one-way markets, if they want to keep their best people.”