How do CEOs make money out of stock bonuses



You hear a lot about CEOs making scandalous bonuses in stock but I was under the impression that they can’t sell massive quantities of stock all at once otherwise the price might drop. I also hear they can get loans using stock as collateral but don’t those loans need to be paid back? Also, apparently hardly anyone pays dividends anymore. Does this money “exist”? Can they purchase stuff worth millions of dollars? Or are they actually cash poor?

In: Economics

When I started at my current company part of the benefit package was a series of “stock options” that granted me the right to buy company stock on or before a future date at a specific price.

If the stock were to rocket to $200/share, I could still exercise the options for $13 and effectively pocket the difference.

Yes a CEO can’t liquidate an enormous stock position in one day, but that’s true for every wealth person. They all keep their money in stocks, not Scrooge McDuck vaults – it’s only sold as needed to fund other activities or move to better investments.

They have vast collateral to keep cheap lines of credit open, but they can certainly be cash poor.

They have stock options and all that is true, BUT

Most CEOs bonus structure is tied to the stock price. If they meet their stock goals they are given millions of dollars. They are then incentivized to do things like stock buy backs.

I’ll question your assertion that “hardly anyone pays dividends anymore”, I literally just received a dividend yesterday from my corporate stock, and will continue to receive them quarterly… That’s kinda the point, as part owner of the company, I’m entitled to a part of the profits.

It’s true that CEOs can’t sell off stock easily, they typically have to declare sales in advance to avoid things like insider trading or causing an uproar on the market. But that’s not to say they can’t sell large volumes of stock, they can earn millions of dollars from stock sales in a go, but they just need to forecast it.

Options are also a big piece, as u/Lithuim explained below. It’s essentially a free bonus.

Take Tim Cook or Elon Musk. They both have stock grant or option programs based on the performance of their companies. For Musk especially he could get HUGE amounts of stock, but then the targets he must meet are very high, meaning the company became wildly successful.

For the most part they sit on that stock. Musk has no need for $5 billion right now, so no need to sell that much. But they all can set up preprogrammed stock sales to get them a very healthy amount of money on a regular basis without any real impact on the company. Bezos funds his rocket company with a yearly $1 billion sale of Amazon stock.

As far as loans, they do need to be paid back. But the terms are very favorable with value of a solid company’s stock as collateral.

First off, CEO’s aren’t typically getting bonuses that are so much stock as to move the market. 50k or 100k shares on a stock that trades 1m+ daily isn’t really enough to make that big an impact. But they typically don’t sell it all in one fell swoop. Partly because the market wants to see C-level execs with skin in the game, so to speak, by holding shares — that’s the reason they’re granted in the first place. CEO’s and other top exec often have recurring trades set up to sell smaller amounts on a regular basis, both to spread out the volume but also to remove inkling of insider trading, while being able to take some money off the table to spend, diversity their investments, etc. So they may have something set up to, for example, sell 5,000 shares every quarter one week following their earnings report.

But even if they wanted to buy a yacht or something and needed eight figures, that amount of money transacting in shares is not all that dramatic. Companies performing stock buy backs are dealing with much larger quantities of shares, but you don’t really see even tens of billions being spent to buy back Apple shares, let alone if Tim Cook were to sell off $5m in shares.