Million-Dollar Question: A Week After The IPO, What's The Latest On Facebook's Stock Comp?

It's been one week since Facebook's initial public offering. Last month, this blog provided various insights into the company's stock grants and the related tax issues for Facebook employees.

As we mentioned then, and as Facebook's registration statement (page 48) explains, the restricted stock units granted by the company before 2011 will not pay out and fully vest until six months after the IPO. They face two vesting hurdles: time worked at company and a liquidity event (i.e. the IPO). We have seen these types of vesting requirements in grants made by some other pre-IPO companies, such as Twitter (see an FAQ at myStockOptions.com).

Facebook continues to rely on the broad use of RSU grants, though these will vest in the standard time-based way. In the 6th amendment to its S-1 registration statement, the company disclosed that in early May it awarded more than 25 million RSUs in what it termed "employee refresher grants" (see page 78 of the S-1 and an article at the blog TechCrunch).

Now for the million-dollar question (literally). How much wealth has the IPO created for employees at Facebook? How many are now millionaires? According to Aaron Boyd, Director of Research at the compensation research firm Equilar, at the time of the IPO the average paper value of equity per employee was $4.9 million (excluding CEO Mark Zuckerberg's vast holdings). Equilar used the information in the prospectus for the most recently completed quarter for the number of options and restricted stock outstanding as of March 31, 2012, and calculated the values with the IPO price. In an article on May 21, The Washington Post reported that 600 of Facebook's 3,700 employees and 250 former employees will become millionaires, according to PrivCo, a research firm.

The wealth created for senior executives will be much greater. An insider of a company registering stock for the first time under Section 12 of the Securities Exchange Act must file Form 3 under the SEC's Section 16 rules no later than the effective date of the registration statement. It's worth looking at the data in these fillings by Facebook insiders for the stock grants and outright stock holdings and how they are reported with the SEC on Form 3.

For example, the Form 3 for CFO David Ebersman shows he holds 1.2 million RSUs that vest quarterly between early 2012 and early 2019, along with options to buy 4.5 million shares at $3.23 per share. These began vesting in 2010, starting with a fifth of the grant, followed by monthly tranches that will bring the grant to full vesting by 2015. In a footnote, the Form 3 also discloses that the RSUs he holds in which vesting is based on both continued service and liquidity (additional 6.75 million RSUs) are not considered reportable under SEC rules. The Form 3 for COO Sheryl Sandberg also contains new details on her options and RSU grants, such as the vesting provisions. Mark Zuckerberg's Form 3 discloses his stock options, along with the company stock he owns through various trusts (an estate-planning technique to minimize taxes).

When these executives and other senior executives at Facebook get more stock grants or sell company stock, they will have to make filings on Form 4. In addition, sales will also need to follow the SEC's Rule 144 requirements. These will be worth following, as they may reveal some information about individual financial planning, such as whether sales are made under Rule 10b5-1 trading plans, along with showing any changes in Facebook's stock compensation practices after the IPO.

[For more on Facebook stock compensation, see our blog entry of October 29 about the end of the lockup.]