Meta has reached an agreement with its CEO, Mark Zuckerberg, aimed at preventing him from relocating out of California due to a proposed tax targeting billionaires. This deal grants Zuckerberg, whose fortune surpasses $200 billion (£149 billion), additional shares in Meta to offset potential losses from the new state tax, should it be approved by voters in November.
The proposed measure would impose a one-time 5% tax on individuals with a net worth exceeding $1 billion, potentially resulting in Zuckerberg facing around $10 billion in extra state taxes.
Following what was described as “robust” and at times “contentious” negotiations, Zuckerberg secured this arrangement with a special committee at Meta, as noted in a financial disclosure released on Wednesday.
California is home to a significant number of the United States’ tech billionaires, with around 225 residing in the state. The wealth of individuals like Zuckerberg has surged in recent years, yet his effective tax rate in California has been reported at less than 1% annually.
Despite his vast wealth, Zuckerberg expressed to Meta’s board last month his contemplation of moving his primary residence out of California and even selling his properties in the state, which include his homes in Palo Alto and Lake Tahoe. He warned that such a move would attract significant attention from company employees and could raise management concerns going forward.
In response to his concerns, Meta initiated a stock split to compensate Zuckerberg for any wealth he might lose due to the tax proposal. This stock split, announced on Wednesday, involves creating a new class of stock, with existing shareholders receiving additional shares. As one of Meta’s largest shareholders, Zuckerberg maintains control over the company due to his unique shareholding structure.
The new deal allows him to receive and sell stock more frequently, without altering his control over Meta. The agreement remains effective for eight years, provided Zuckerberg continues to reside in California, and it aims to keep him at the helm of the company during a significant transformation in the tech industry influenced by artificial intelligence.
Meta has referred to this agreement as its “Founder Alignment Agreement,” emphasizing its importance in ensuring Zuckerberg’s leadership amid the ongoing changes in the tech landscape, particularly in relation to AI.
The company has faced challenges during the pandemic, including a shift to remote work for Zuckerberg, who primarily operated from his large compound in Kauai, Hawaii. After a period of aggressive hiring, Meta encountered a whistleblower scandal that redirected focus toward child safety, ultimately leading to massive layoffs and restructuring efforts.
Currently, the company has shifted its focus from the “metaverse” to artificial intelligence products and tools, with Zuckerberg spearheading initiatives to catch up in the AI sector. Meta’s board sees vast market opportunities ahead, with major tech firms projected to spend around $1 trillion this year on AI and its related infrastructure, such as data centers.
Recently, Meta announced plans to allocate up to $145 billion this year specifically for AI projects, increasing its expected quarterly AI expenditures. This substantial investment has resulted in negative cash flow for the first time since the company went public 14 years ago, indicating that Meta is currently outspending its income.
Meta’s CFO, Susan Li, noted that the stock split could provide additional financing avenues for future AI initiatives. However, the scale of Meta’s AI spending, without a clear revenue stream to support it, has raised concerns among investors, leading to a decrease in the company’s stock price of more than 7%, erasing over $100 billion from its market capitalization.
