Embattled Snap CEO Evan Spiegel wins pay derby

Snapchat update sparks backlash

Snap (SNAP) Chief Executive Evan Spiegel was in the money last year. His compensation package of $504.5 million was the most of any corporate leader, according to the Bloomberg Pay Index. The same can't be said about the shareholders of the company that owns social media service Snapchat.

The 27-year-old Spiegel, who helped found the company in his Stanford University dorm room, received a stock grant equal to 3 percent of Snap's outstanding shares at the time of the company's March 2017 initial public offering. The grant was then worth about $636.6 million. But Snap shares plummeted 14 percent last year, pushing down the value of Spiegel's holdings to $503.3 million as of Dec. 31. Spiegel also received $1.18 million in salary and perks.

Echoing the moves of other leading tech executives such as Facebook's (FB) Mark Zuckerberg, Oracle's (ORCL) Larry Ellison and Alphabet's (GOOG) Larry Page, Spiegel agreed to take a salary of $1 after the company went public. He controls Snap through a dual-class stock structure similar to Facebook and Alphabet, which gives him 44.3 percent of the company's voting shares. 

Snap's history as a public company has been rocky. Facebook copied Snap features in its Instagram service, gaining users at Snap's expense. During its most recent quarter, Snap reported daily active users of 191 million. Though that was a 15 percent gain year-over-year, it lagged analyst expectations of 194.2 million. Instagram has 500 million monthly users. A few years ago, Facebook viewed Snap as a potential partner and reportedly tried to buy it for $3 billion.

Snapchat's journey from start-up to tech giant

To make matters worse, Snap's botched redesign of its site enraged prominent users such as reality show star/entrepreneur Kylie Jenner. More than 1 million Snap users signed a petition urging the company to scrap the redesign, and some have argued that Snap's efforts to "fix" the redesign have fallen short.

Shares of Snap have plunged more than 20 percent since the start of the year, deeply underperforming the broader market as measured by the S&P 500 index, which has barely budged. The money-losing company has failed to meet Wall Street analyst expectations in every quarter but one, which makes Spiegel's pay problematic, according to analysts.

'It's a tough pill to swallow for investors that have suffered the pain over the past year," wrote Daniel Ives, chief strategy officer and head of technology research at GBH Tech Research, in an email. "Evan built Snap along with the team. However, the compensation issue is another variable along with a myriad of execution and business-model issues that have kept investors away from the stock during this turmoil. It's been a twilight zone for investors in the stock."

Ives' sentiments were echoed by Jeffrey Sonnenfeld, senior associate dean for leadership studies at Yale School of Management. "It is very hard to justify," Sonnenfeld wrote in an email. "This would not be tolerated in a different sector."

Snap has also seen an exodus of top managers in recent months including its chief financial officer, head of sales, senior vice president of engineering and general counsel.  

According to Gene Munster of Loop Ventures, the road ahead for Spiegel and Snap isn't easy given the competition it faces from Facebook. "Founders tend not to make good operators," he said, adding Snap's problems would worsen if Spiegel left. "I don't know what the solution is."

Officials from Snap didn't respond to a request for comment for this story.