Palantir (NYSE:PLTR) filed its fiscal 2020 proxy on April 29. It shows that CEO and co-founder Alex Karp’s total compensation this past year was $1.1 billion, much of it in PLTR stock options and awards.
While Peter Thiel, one of the company’s largest shareholders, probably thinks he’s worth it, I doubt it very much.
The Value of PLTR Stock Options to Karp
Supporters of the data analytics software company would likely argue that the amounts listed in the proxy for stock awards and option awards in 2020 – $296.4 million and $797.9 million, respectively – have yet to be earned. They are merely an estimate of what they would be worth today were they available for vesting and exercisable.
In fact, if you exclude those awards, he really only made $4.3 million, much of that for additional security and use of the company aircraft. He’s really just a pauper when you look at it from that perspective.
I’m facetious, of course.
No CEO, even a co-founder, deserves this kind of payday. And let’s not forget that Karp actually made $48.7 million in 2020 from 2.57 million shares exercised from previous option awards that vested during the year. You can find that tidbit on Page 42 of the proxy.
So, he really made $53 million in 2020. I could get by on that.
Now, consider that as of April 16, Karp held 5.1% of Palantir’s outstanding stock, or 81.48 million shares, for an economic interest of 4.3%. Today, as I write this, those shares are worth $1.76 billion.
This is something that drives me nuts about corporate America.
Either you’re a paid gunslinger, and options and awards are the carrots to get you to stay long-term, or you’re one of the founders, and your compensation has already been plentiful. You shouldn’t receive both.
In reality, it’s a betrayal of shareholders, not to mention most of the employees.
The Berkshire Hathaway Way
A $100,000 salary – same as it’s been for a long time – and $280,328 for personal and home security services provided to Buffett and paid by the company.
Even Greg Abel, the recently named successor to Buffett as CEO, was only paid a little over $19 million in 2020, $16 million of it in salary and $3 million for a cash bonus. I’d have to look closely at Berkshire’s tax returns, but it’s my understanding that anything over $1 million in executive compensation that’s not performance-based isn’t deductible on its tax return.
If that’s the case, Berkshire’s missing out on $15 million in deductions regarding Abel’s pay, primarily, I would assume to make a point. It’s a point I fully understand and agree with.
In 2020, Berkshire Hathaway’s net earnings were $42.5 billion. Abel’s total compensation was 0.045% of that number. Meanwhile, Palantir lost $1.12 billion. In terms of sales, Abel’s total compensation was 0.008% of Berkshire’s $245.5 billion in revenue. By comparison, Karp’s total compensation – I’m using $53 million – was 4.9% of its 2020 revenue of $1.09 billion.
If Abel were paid like Palantir’s CEO, he would have made a little over $12 billion last year.
The Bottom Line
You would think by the words I’ve written in this article that I’m not a fan of Palantir’s. That’s not entirely true.
The last time I wrote about PLTR stock was at the beginning of April. I recommended that investors wait to buy its stock in the teens, where the risk-to-reward proposition was much greater. At the time, it was trading around $23, slightly higher than where it is as I write this.
After looking through Palantir’s proxy, I’m even more skeptical about its upside despite Thiel being one of its largest shareholders. Most things Thiel touches seem to turn to gold. Perhaps Palantir should pay Karp in gold instead.
I can say with certainty I think investors considering Palantir stock should wait to buy in the teens, preferably around $15. Make the CEO work for his money.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.