The incentives driving Facebook's CEO v Commonwealth Bank's CEO

With Facebook crossing $1 Trillion in market value this week, we thought it would be worth highlighting the striking difference in incentives of a great founder-lead business in Zuckerberg/Facebook versus a stock held by nearly all Australian Super Funds - Commonwealth Bank. Immediately, two Charlie Munger quotes come to mind: “It is the unlikely extremes in outcomes – good or bad – that often instruct best” “Show me the incentive and I’ll show you the outcome” A few interesting points from the data presented in the tables below for the period FY12 (when Facebook listed) to FY21: FBs market capitalization in FY12 was $70.8b v CBA of $88b Zuckerberg’s total salary for the period was $500,008 (note he is currently being paid $1 per annum and has been since 2013) v Narev and Comyn’s of $19.1m Zuckerberg’s total package (salary + stock options) for the period was $101m v Narev and Comyn’s of $82.1m Zuckerberg’s value creation for the period was $775b v Narev and Comyn’s of $69b (adjusted for share issuances) Zuckerberg’s has been paid an extra $20m for creating an extra $706b in value for shareholders I’m sure there are many counterarguments to this comparison ie. this isn’t 'apples-to-apples' … banks v a social network. However, our point is a ‘directional one’ … given the vast number of opportunities (stocks) to invest in, why would you place your capital with professional CEOs whose payoff for a poor decision/s is a salary of a few million a year ?!?! Core to our investment philosophy is backing great founders in great business models and making probability-weighted bets on which ones are most likely to outperform the market. We believe shareholder-friendly behaviours such as: low salaries coupled with aligned incentives; high insider ownership; clean accounting; a board of business savvy individuals; transparent communication … and most importantly …. very careful issuance share capital ….. tilt the probabilities of successful investment performance in our favour. Thanks for reading, Lachlan Morgan, CFA

The incentives driving Facebook's CEO v Commonwealth Bank's CEO