Investors are largely delighted with their bet on the affairs of Santa Clara, California, and the man Mark Zuckerberg nicknamed “Taylor Swift of Tech.”
But the dazzling growth of Nvidia has led some experts to wonder if the corporate governance of the company has matured so quickly.
This, inevitably, raises questions about the reasons why Huang sells instead of holding.
And this, in turn, led to the question of why Huang has so many actions in the first place, and if his remuneration set incites shareholders to performance.
Investors want more information on the company at the top. They want to see more transparent corporate governance, open succession planning and a change in salary structure to motivate the next man’s next era, according to executive compensation experts who spoke to Fortune.
Huang sells its actions under a very specific plan – a 10B5-1 rule agreement – which allows managers and employees to buy or sell shares in their own business without violating the laws on initiate negotiations Using a predetermined calendar.
Rule 10B5-1 has a number of specific requirements, including a formula for sales (and not an individual) is used to determine the number, price and date of commerce. A third party must also be used to make sales, which cannot be influenced by the customer.
According to Nell Minow, vice-president of corporate governance specialists, Valueedge Advisors, is not a good look.
“I want all their eggs in a single basket.”
This year is not the first time that Huang has used a 10B5-1 rule, although it is a more tenacious sale than previous trades.
In September of the yearFor example, Huang discharged 237,500 shares worth more than $ 117 million under a 10B5-1 negotiation agreement. This year, in comparison, Huang sold $ 323 million in Nvidia shares in July only.
Huang was not the only NVIDIA executive to confirm a negotiation agreement for rule 10b5-1 Vétage in April.
Debora Shoquist, vice-president of executive operations; Colette M. Kress, executive vice-president and CFO; And Ajay K. Puri, executive vice-president of world field operations, revealed similar plans.
“This indicates that the stock has jumped enormously and that they become a little nervous about it,” believes Minow. “It is certainly worrying for investors; We wonder: “Well, I may have to sell mine too. What do they tell me? If they do not have confidence in the stock, then why should I? »»
Fortune Approached Nvidia to comment on the number of shares in the total that Huang plans to unload, and when its sale will end. The company did not answer the question.
Nvidia said Fortune: “M. Huang sales are based on a 10B5-1 plan, in which the price, the amount and the sales dates are established in advance.”
James Reda is Managing Director of the HR and remuneration of the Council based in Chicago. He worked on a number of high -level remuneration cases, From Howard Schultz to Starbucks in the early 2000s To advise Satya Nadella Microsoft Pack.
Why has Huang upset the sale of his stock day after day, instead of unloading larger sums at the same time, we asked him.
“If you just throw this on the market, the stock will drop,” said Reda Fortune. “You must therefore be very sensitive to this … if you have an important position that some of these founders and CEOs have, it could be a better strategy.
“I saw a lot of cases where things are poorly executed and the original tanks. Not because people think something happens, and all that, but excess supply. The market is confused as to what they do with it. »»
The fact that Huang sends almost daily as opposed to wider intervals is not a surprise for Reda either. The 10B5-1 plan is public, so the markets will be aware of the stock of stock and will not be caught off guard.
And while some analysts like Minow want the founders to focus singularly on their own stock, Reda does not agree: “In the end, if you do not sell the stock, you will have to be like Elon Musk and Others who put stocks for warranty and obtaining these huge loans.
“It makes everyone more for the benefit, why do that?” Take a small stock regularly and sell it. »»
An examination of the deposits of the dry of each large technological company presents a range of often complex remuneration provisions. Zuckerberg de Meta is famous for a single dollar for his salary but Takes $ 24.4 million in security fees. Tim Cook of Apple has restricted stock units based on performance in a Remuneration package worth $ 49 million. The Sundar Pichai of Alphabet receives a subsidy of triennial stocks, which led to a $ 226 million on salary in 2022.
The range of options also reveals a common practice in Silicon Valley: CEOs – in particular the founders – are often fully attributed actions not only so that they maintain a feeling of power over an expanding empire, but also because that it is a proven and tested method to motivate those at the top.
Nvidia proxy deposit in 2024 For the year 2024, reveals that Huang was paid for a salary of $ 996,514, with scholarships worth $ 26 million and an additional incited cash compensation of $ 4 million. Its total remuneration set was worth around 34.17 million dollars.
The file also revealed Huang’s assets in NVIDIA before actions from this spring, the figure located at more than 93 million shares – 3.79% of the company.
This is a sign that Huang received too much stock, believes Minow.
In his estimate, Huang’s actions should be locked in “gold handcuffs” – which means that he can only sell years after leaving the business.
“Stop giving him stock. He clearly has too much, and that is why he gets rid of it, “said Minow. “The marginal value of additional stock subsidies is negligible.”
NVIDIA has a “performance remuneration” strategy, according to its deposit of the SEC, depending on income, operating income and shareholder yields compared to the S&P 500.
But Minow wants more details. She said: “I would create very specific objectives – and it is the work of the board of directors – a market share, innovation, expansion, improvement of operations. Whatever the board of directors, the priorities should be.
“And let the market know what these goals are. This helps us as investors know if it is something we want to participate in. »»
The advice itself presents an additional improvement potential, in the opinion of Minow. Of the 12 people on the board of directors of the company of 2.93 billions of dollars, only one cites “corporate governance” experience in Their official biography (although some of the others have sat on other advice).
Minow also wants to see Nvidia check the list of tasks of the company by updating the market on a successor to the CEO. After all, CEOs cannot direct forever.
“Its board of directors (is) very strong on technology, not as much on corporate governance,” explains Minow. “I would really like to see them say:“ We have a process in place to make sure that we cultivate our best people, assuring ourselves that we have a deep bench; Here’s how we go.
“We do not need a name, but they must be very direct on the value that Huang presents and that they take very seriously the idea that he could simply decide to spend his money … They must Be prepared for this.
Huang, famous for his Endless and endless work schedule for perfectionismis the beating heart of Nvidia – and it has an attached price.
“Huang is the heart and soul of the company; Its reputation is almost as important as the quality of the product, ”adds Minow. “Especially when you talk about the richest man (15th) in the world – How do you keep him motivated?” It is certainly not by allowing him to diversify his assets.
“I would give it more of its compensation in species linked to very specific and quantifiable objectives.”
Fortune Asked Nvidia what was his succession plan and if it would be more transparent with shareholders on remuneration practices. Nvidia refused to comment.
Pressure for transparency is necessary through the market, explains Aalap Shah, director general of remuneration and leadership council Pearl Meyer.
Some of the pillars of the American trade have already learned this lesson: it is enough to ask Jamie Dimon de JPMorgan, which was opened on the process of planning the succession of the banking giant – even having his “Successful CEO by a bus. “”
Elsewhere, Morgan Stanley was subject to immense speculation before its selection last year of Ted Pick to replace James Gorman.
“We should be much more transparent than we are currently talking about succession planning,” explains Shah Fortune. “From my point of view for an incoming CEO … One of the first five things they should do is planning the next generation. It is for me a company that really looks at the future and which appropriately envisages corporate governance.
“When the succession of the next generation is not transparent and thoughtful, you must make reckless decisions, and that, from the point of view of shareholders and investors, which causes volatility.”
This story was initially presented on Fortune.com