Questions from WSJ Weekly Review:
- From the article: “Alexander Karp, the chief executive officer and a co-founder of Palantir…received compensation valued at $1.1 billion last year, including $798 million in options and $296 million in restricted stock…” The board of directors of Palantir agreed to compensate Alexander Karp with options to buy Planatir stock. Why would the board pay Karp with options to buy Palantir stock rather than pay him a salary?
- From the article: “Shortly before DoorDash went public…the meal-delivery company awarded co-founder and CEO Tony Xu restricted shares…valued at more than $400 million...” Explain what “going public” means. Why would the founders of DoorDash choose to become publicly owned?
- Prior to becoming a publicly owned firm, could DoorDash experience a principal-agent problem? After become a publicly owned firm, could DoorDash experience a principal-agent problem? Briefly explain your answers.
- From the article: “Mr. Xu…started DoorDash with Stanford University classmates in 2013. The company…had $2.9 billion in revenue last year and reported a loss of $461 million.” Why would the board of directors award CEO Tony Xu a large compensation package when DoorDash suffered a loss of $461 million?
- From the article: “Ambitious, all-or-nothing equity packages are intended to keep and motivate leaders …according to Terry Adamson, a managing director at Technical Compensation Advisors. ‘They’re so levered and so high-risk…They either create massive awards or they create nothing.’” Briefly explain what is meant by an “all-or-nothing” equity package. Briefly explain why an equity package would “create massive awards” or “create nothing.”
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