A New Way to Curb Dilution?

First off, I must say that I was thrilled to see so many of you last week in sunny San Diego (and boy, was it sunny in a perfect kind of way) at our 23rd Annual Conference. The Conference was a wild success and our members helped make it so. Shortly before the Conference, several news outlets carried the story of Twitter's CEO returning a significant number of his own shares of stock to the Company for use in employee equity programs. There wasn't time to cover it then, but I wanted to take a moment to share the story now.

In the latter part of October, Twitter CEO Jack Dorsey tweeted (of course!) that he was giving one-third (wow!) of his own shares of Twitter stock, 1% of the Company, to the organization for use in the Company's equity pool. The value of those shares is estimated to be $200 million. While the return of stock to a company from a CEO or founder is not unprecedented, the size of Dorsey's stock contribution marks new territory. I am hard pressed to find a CEO that has surpassed that figure.

A Way to Avoid Dilution?

Mr. Dorsey's gift seems to be a win on multiple fronts. It's bound to boost employee morale, since the shares are going straight to the Company's equity pool and will be used to incentivize employees. Shareholders are likely to be happy, since the shares will reward employees without affecting the Company's dilution figures. And, CEO Dorsey seems excited about it, tweeting "I’d rather have a smaller part of something big than a bigger part of something small." It can't hurt that his other company, Square, recently filed for their IPO. Forbes highlights that in an earlier, similar move, Dorsey also returned 20% of his stake in Square to employees as well.

A New Trend?

The question now becomes, will other CEOs follow suit? According to the Washington Post, Dorsey isn't the first CEO to give shares back to employees. In their coverage of this story, they shared that "The chief executive of a Turkish food delivery company paid out $27 million to 114 employees this summer after selling the firm. In July, Bobby Frist, the nephew of former U.S. Senate Majority Leader Bill Frist, gave $1.5 million of his own shares to 600 employees of the Nashville-based health care company he runs. Dan Price, the founder of Seattle-based Gravity Payments, made headlines for using his $1 million salary (as well as company profits) to fund raises for every employee in his company to at least $70,000. In 2013, Lenovo CEO Yang Yuanqing gave $3.25 million of his $4.23 million bonus to hourly employees." The noticeable difference in Twitter's case is the size of the gift - shares valued at $200 million - a huge step above the other recorded cases. I'm guessing that a gift of Dorsey's magnitude is probably not going to start a wave of similar actions (though it certainly would be nice if it did). For one thing, not all CEOs have such a wealth of stock from which to pull such a sizable donation. Founder CEOs (or simply founders) may have the advantage here, as they are often likely to have a larger stake in the company than subsequent CEOs - which makes them more able to give away a large number of shares without making much of a dent in their own personal fortune. CEO Dorsey is a billionaire, so this is a smaller drop in the bucket for him. However, the gift is not likely to be small potatoes to the employees who will benefit from receiving stock awards.

Time will tell if Mr. Dorsey's generosity and smart thinking (giving employees more equity without increasing dilution) inspires other founders or CEOs to take similar action.

-Jenn