Meta has reached a new compensation agreement with chief executive Mark Zuckerberg that could help him offset the cost of a proposed billionaire tax in California, following concerns that the measure might prompt him to move out of the state.
The agreement gives Zuckerberg access to additional Meta shares and greater flexibility to sell them, potentially helping him recover some of the wealth he could lose if California voters approve the proposed tax in November.
Zuckerberg’s fortune is estimated to exceed $200bn (£149bn). Under the proposal, California residents with a net worth above $1bn would face a one-time tax of 5%, which could leave the Facebook co-founder facing an additional state tax bill of approximately $10bn.
According to a financial disclosure published on Wednesday, the agreement followed negotiations described as robust and, at times, contentious.
How the new stock agreement works
Meta established a special committee to negotiate the arrangement with Zuckerberg, who is among the company’s largest shareholders and maintains control through the structure of his shareholdings.
The company announced a stock split that created a new class of stock, with each existing shareholder receiving one new share.
Under the agreement, Zuckerberg will receive additional shares more frequently and will be able to sell them quarterly. The arrangement is designed to give him greater flexibility to realise the value of his holdings without changing his level of control over Meta.
The agreement, known as the Founder Alignment Agreement, could remain in effect for eight years, provided Zuckerberg continues to reside in California.
Notably, the deal appears to apply even if voters reject the proposed billionaire tax.
Zuckerberg considered leaving California
The agreement followed concerns Zuckerberg reportedly raised with Meta’s board last month about the possibility of relocating his primary residence outside California.
He also considered selling his properties in the state, including homes in Palo Alto and Lake Tahoe.
According to the company’s disclosure, Zuckerberg warned that such a move would attract public attention and inevitably prompt discussion among Meta employees. He also suggested that leaving California could raise questions about the company’s future management.
California is home to many of America’s biggest technology companies and approximately 225 billionaires, according to the campaign group Americans for Tax Fairness.
The proposed tax has become a significant issue for the state’s wealthiest residents, whose fortunes have grown substantially in recent years.
The campaign group has also highlighted the contrast between billionaire wealth and tax contributions. Zuckerberg’s estimated effective California tax rate has reportedly been below 1% annually.
Meta says retaining Zuckerberg is critical
Meta described the agreement as essential to keeping Zuckerberg at the helm during a period of major technological change.
The company said the arrangement was “critically important” because of the “dramatic and unprecedented transformation” taking place across the technology industry and global economy, particularly as artificial intelligence develops.
Meta has undergone significant changes in recent years.
During the Covid-19 pandemic, the company expanded its workforce rapidly while Zuckerberg spent considerable time away from its offices, including at his property in Kauai, Hawaii.
The company subsequently faced a whistleblower scandal that renewed scrutiny of child safety, pursued ambitious plans for the metaverse and changed its name from Facebook to Meta.
It later scaled back its metaverse ambitions and implemented major layoffs and restructuring. Job cuts have continued this year, with the company’s workforce reportedly down 15% from a year earlier, representing at least 10,000 fewer employees.
Meta is now placing greater emphasis on AI products and infrastructure as Zuckerberg leads its efforts to compete in the rapidly developing market.
Heavy AI spending raises financial concerns
Meta’s agreement with Zuckerberg comes as the company commits enormous sums to artificial intelligence.
Technology companies are expected to spend an estimated $1 trillion collectively this year on AI development and supporting infrastructure, including data centres.
Meta said on Wednesday that it planned to spend as much as $145bn on AI projects this year. The company has increased its projected quarterly spending on the technology throughout the year.
The investment has been so substantial that Meta recorded negative cash flow for the first time since going public 14 years ago. Negative cash flow means the company is spending more money than it retains after covering its operations and investments.
Meta intends to increase its spending further in the coming year.
Chief financial officer Susan Li said the stock split would also give the company additional options for financing future AI investments.
However, investors appeared concerned about the scale of the spending and the lack of a clearly established new revenue stream sufficient to justify it.
Meta shares fall as investors weigh AI costs
Meta’s shares fell by more than 7% on Thursday, wiping more than $100bn from its market capitalisation.
Market capitalisation represents the total market value of a publicly traded company’s outstanding shares and is widely used to assess its size and value.
The decline highlights the uncertainty surrounding Meta’s AI strategy. Although the company sees substantial commercial opportunities in the technology, investors must weigh those prospects against the considerable costs of development and infrastructure.
The new stock agreement may help Meta retain its chief executive while giving Zuckerberg more flexibility over his personal holdings. However, it also arrives at a time when the company faces pressure over its investment strategy, workforce reductions and the financial returns expected from artificial intelligence.
For Zuckerberg, the deal offers a way to remain in California while potentially offsetting some of the financial consequences of the proposed billionaire tax. For Meta, it is an attempt to maintain leadership stability as the company invests heavily in what it believes will be its next major phase of growth.
