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Five years ago Nvidia<\/a> CEO Jensen Huang was worth a respectable $3.73 billion. At the time of writing, his net worth has ballooned to a little over $92 billion\u2014and even then it\u2019s down from its high of $119 billion earlier this summer.<\/p>\n While Huang has worked on Nvidia for more than three decades<\/a>, it has only been over the past 12 months or so that the chipmaker\u2019s stock price has really begun to take off<\/a>, and with that comes scrutiny.<\/p>\n Investors are largely thrilled with their bet on the Santa Clara, California, business, and the man Mark Zuckerberg dubbed the \u201cTaylor Swift of tech.\u201d<\/a><\/p>\n But Nvidia\u2019s meteroric growth has led some experts to question whether the company\u2019s corporate governance has matured as quickly.<\/p>\n They point to the fact that CEO Huang has been offloading approximately $14 million\u2019s worth of shares on a near-daily basis for months this summer<\/a>. He still retains more than a 3.5% stake in the business.<\/p>\n This, inevitably, raises questions about why Huang is selling instead of holding.<\/p>\n And that, in turn, leads to the issue of why Huang has so many shares in the first place, and whether his compensation package incentivizes the performance shareholders want to see.<\/p>\n Investors want more intel on the business at the top. They want to see more transparent corporate governance, open succession planning, and a change in pay structure to motivate the next era of management, according to executive compensation experts who spoke to Fortune<\/em>.<\/p>\n Huang is selling his shares under a very specific plan\u2014a Rule 10b5-1 agreement\u2014which allows executives and employees to buy or sell stock in their own company without violating insider trading laws by using a predetermined schedule.<\/p>\n A Rule 10b5-1 has a number of specific rules, chief among them that a formula for the sales (not an individual) be used to determine the number, price, and date of the trade. A third party must also be employed to conduct the sales, who cannot be influenced by the client.<\/p>\n So while Huang is comfortably removed from any concerns about insider selling, the fact still remains that he is choosing to sell after a period of high share performance and then a dip.<\/a><\/p>\n This, according to Nell Minow, vice chair of corporate governance specialists ValueEdge Advisors, is not a good look.<\/p>\n Minow, who also owns shares in Nvidia herself, explained to Fortune<\/em>: \u201cWhat I want from an executive [is] to be very bullish on the stock. I want the executive to be thinking all the time: \u2018Boy this is really going to be worth a lot more soon\u2019 and not \u2018Oof I better sell some because I\u2019m \u2026 experiencing the vertigo of having all my eggs in one basket.\u2019\u201d<\/p>\n \u201cI want all of their eggs in one basket.\u201d<\/p>\n This year isn\u2019t the first time Huang has employed a Rule 105b-1\u2014though it is a more tenacious selloff than previous trades.<\/p>\n In September last year<\/a>, for example, Huang offloaded 237,500 shares valued at just over $117m under a 10b5-1 trading agreement. This year, by comparison, Huang sold $323 million in Nvidia stock in July alone. <\/p>\n Huang wasn\u2019t the only Nvidia exec to confirm a Rule 10b5-1 trading agreement in the April filing<\/a>.\u00a0<\/p>\n Debora Shoquist, executive vice president of operations; Colette M. Kress, executive vice president and CFO; and Ajay K. Puri, executive vice president of worldwide field operations, disclosed similar plans.<\/p>\n \u201cIt signals that the stock has jumped tremendously and they\u2019re getting a little nervous about it,\u201d Minow believes. \u201cIt\u2019s certainly concerning for investors, we ask ourselves: \u2018Well maybe I should be selling mine too. What are they telling me? If they don\u2019t have the confidence in the stock, then why should I?’\u201d<\/p>\n Fortune<\/em> approached Nvidia for comment on how many shares in total Huang plans to offload, and when his selloff will end. The company did not respond to the question. <\/p>\n Nvidia told Fortune<\/em>: \u00a0\u201cMr. Huang\u2019s sales are based on a 10b5-1 plan, in which the price, amount and dates of the sales are established in advance.\u201d<\/p>\n James Reda is a managing director at Chicago-based consultancy Gallagher\u2019s HR and compensation practice. He has worked on a number of high-profile compensation cases, from Howard Schultz at Starbucks in the early 2000s<\/a> to advising on Satya Nadella\u2019s Microsoft<\/a> package.<\/p>\n Why is Huang drip-feeding the sale of his stock, day after day, as opposed to offloading larger sums all at once, we asked him.<\/p>\n \u201cIf you just dump that in the market the stock\u2019s going to go down,\u201d Reda told Fortune<\/em>. \u201cSo you have to be very sensitive about it \u2026 If you have a large position that some of these founders and CEOs have, it could be a better strategy.<\/p>\n \u201cI\u2019ve seen a lot of cases where things are executed improperly and the stock tanks. Not because people think something\u2019s going on and all that stuff, but the excess supply. The market\u2019s confused about what they do with it.\u201d<\/p>\n The fact that Huang is selling on a near-daily basis as opposed to wider intervals is also not a surprise to Reda. The 10b5-1 plan is public, so markets will be aware of the stock influx and won\u2019t be caught off guard.<\/p>\n And while some analysts like Minow want founders to be singularly focussed on their own stock, Reda disagrees: \u201cUltimately if you don\u2019t sell the stock you\u2019re gonna have to be like Elon Musk and some others that are putting stock up for collateral and getting these humungous loans.\u201d<\/p>\n \u201cThat just makes everybody more leveraged, why do that? Peel off a little stock on a regular basis and sell it.\u201d<\/p>\n A look through the SEC filings of every Big Tech company presents a range of often complex compensation provisions. Meta\u2019s Zuckerberg is famously paid a single dollar for his salary but takes $24.4m in security costs<\/a>. Apple\u2019s Tim Cook has performance-based restricted stock units in a compensation package worth $49 million<\/a>. Alphabet\u2019s Sundar Pichai is given a triennial stock grant which led to a $226m payday in 2022<\/a>.<\/p>\n The range of options also reveals a common practice in Silicon Valley: CEOs\u2014particularly founders\u2014are often continually awarded stock not only so they maintain a sense of power over a rapidly expanding empire, but also because it is a tried and tested method to motivate those at the top.<\/p>\n Nvidia\u2019s 2024 proxy filing<\/a> for the fiscal year of 2024 discloses that Huang was paid a salary of $996,514, with stock awards worth $26 million and additional incentivized cash compensation of $4 million. His total compensation package was worth approximately $34.17 million.<\/p>\n The filing also revealed Huang\u2019s holdings in Nvidia prior to the stock sales beginning this spring, with the figure sitting at more than 93 million shares\u20143.79% of the business.<\/p>\n This is a sign that Huang has been given too much stock, Minow believes. <\/p>\n In her estimation, Huang\u2019s shares should be locked in \u201cgolden handcuffs\u201d\u2014meaning he can\u2019t sell until years after he leaves the business.<\/p>\n \u201cStop giving him stock. He\u2019s clearly got too much and that\u2019s why he\u2019s getting rid of it,\u201d Minow said. \u201cThe marginal value of additional stock grants is negligible.\u201d<\/p>\n Nvidia has a \u2018pay for performance\u2019 strategy, per its SEC filing, based on revenue, operating income and shareholder return relative to the S&P 500.<\/p>\n But Minow wants more detail. She said: \u201cI would create very specific goals\u2014and this is the job of the board\u2014around market share, innovation, expansion, improving operations. Whatever the board decides the priorities should be.\u201d<\/p>\n \u201cAnd let the market know what those goals are. That helps us as investors know if it\u2019s something that we want to participate in.\u201d<\/p>\n The board itself presents further potential for improvement, in Minow\u2019s opinion. Of the 12 individuals on the $2.93 trillion company\u2019s board, only one cites experience in \u201c\u2019corporate governance\u201d in their official biography<\/a> (although some of the others have served on other boards).<\/p>\n Minow also wants to see Nvidia ticking off the corporate to-do list by updating the market on a successor to the CEO. After all, CEOs can\u2019t lead forever.<\/p>\n \u201cHis board of directors [are] very strong on technology, not as much on corporate governance,\u201d Minow explains. \u201cI would really like to see them say: \u2018We have a process in place to make sure we\u2019re cultivating our top people, making sure we have a deep bench, here\u2019s how we\u2019re going about it.\u2019<\/p>\n \u201cWe don\u2019t need a name but they need to be very forthright about the value that Huang presents and that they\u2019re taking very seriously the idea that he could just decide to go spend his money \u2026. they\u2019ve got to be prepared for that.\u201d<\/p>\n Huang, famed for his never-off work schedule and endless pushes for perfectionism<\/a>, is the beating heart of Nvidia\u2014and he has a price tag attached.<\/p>\n \u201cHuang is the heart and soul of the company, his reputation is almost as important as the quality of the product,\u201d Minow adds. \u201cParticularly when you\u2019re talking about the [15th] richest man in the world\u2014how do you keep him motivated? It\u2019s certainly not by allowing him to diversify his holdings.\u201d<\/p>\n \u201cI would give him more of his compensation in cash tied to very specific, quantifiable goals.\u201d<\/p>\n Fortune<\/em> asked Nvidia what its succession plan was and whether it would be more transparent with shareholders about compensation practices. Nvidia declined to comment.<\/p>\n A push for transparency is needed across the market, says Aalap Shah, managing director at compensation and leadership consultancy firm Pearl Meyer.<\/p>\n Some of the pillars of American commerce already learned the lesson: Just ask JP Morgan\u2019s Jamie Dimon who has been open about the banking behemoth\u2019s succession planning process\u2014even naming his \u201chit-by-a-bus CEO<\/a>.\u201d<\/p>\n Elsewhere Morgan Stanley<\/a> was subject to immense speculation prior to its selection last year of Ted Pick to replace James Gorman<\/a>.<\/p>\n \u201cWe should be significantly more transparent than we are currently about succession planning,\u201d Shah tells Fortune<\/em>. \u201cFrom my perspective for an incoming CEO \u2026 one of the top five things they should be doing is succession planning. That to me is a company that is truly looking at the future and is appropriately considering corporate governance.\u201d<\/p>\n \u201cWhen succession planning is not transparent and thoughtfully considered you have to make rash decisions, and that from a shareholder and investor perspective that is what causes volatility.\u201d\u00a0<\/p>\n<\/div>\n\n\u2018Huang selling shares doesn\u2019t look good\u2019<\/strong><\/h2>\n
Calming the ripple effect<\/strong><\/h2>\n
Too much stock?<\/strong><\/h2>\n
The succession plan, or lack thereof<\/h2>\n
What does a post-Huang Nvidia look like?<\/strong><\/h2>\n