GameStop announces pay package for CEO entirely tied to the company’s value and profits

GameStop finished Wednesday up 3% after the company announced a long-term performance package for Chairman and CEO Ryan Cohen that completely tethers his financial interests with those of shareholders as well as the company’s operational performance.

Cohen would receive options that enable him to purchase 171.5 million shares of GameStop at $20.66 apiece — but only if the market valuation of the company exceeds certain thresholds and GameStop generates enough cumulative earnings.

Essentially, Cohen can’t benefit personally from another meme stock surge unless that’s combined with a continued increase in profitability.

The package is divided into nine tranches, each with a different market cap and cumulative EBITDA hurdle. The first tranche vests if GameStop clears a $20 billion market cap while the company generates $2 billion in EBITDA under his leadership.

On a closing basis, GameStop has exceeded this $20 billion threshold only during its 2021 meme stock mania. Because of heavy losses from 2019 through early 2022, it’s taken GameStop a full decade to generate its latest $2 billion in cumulative EBITDA.

Cohen’s key moves as leader of the retailer have been to lean into collectibles, which have seen massive growth, while pursuing an aggressive cost-cutting campaign to improve its financial position. And doing the bitcoin treasury thing.

The Takeaway

At a $100 billion market cap with the current share count, GME’s stock would trade at about $223. That would imply Cohen’s stock options to purchase 171.5 million shares at $20.66 would be worth an eye-watering $34.7 billion.

But that, unfortunately, is too simple. Because each tranche vests in turn, and because GameStop is offering over a third of its current shares outstanding, we have to take the dilution into account, which would impact all shareholders, Cohen included. With a bit of napkin math, this would mean Cohen’s 171.5 million stock options would be worth closer to $24 billion, provided, of course, that Cohen leads GME to a $100 billion market cap, so slightly bigger than Starbucks is right now.