Five years ago Nvidia 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—and even then it’s down from its high of $119 billion earlier this summer.
While Huang has worked on Nvidia for more than three decades, it has only been over the past 12 months or so that the chipmaker’s stock price has really begun to take off, and with that comes scrutiny.
Investors are largely thrilled with their bet on the Santa Clara, California, business, and the man Mark Zuckerberg dubbed the “Taylor Swift of tech.”
But Nvidia’s meteroric growth has led some experts to question whether the company’s corporate governance has matured as quickly.
They point to the fact that CEO Huang has been offloading approximately $14 million’s worth of shares on a near-daily basis for months this summer. He still retains more than a 3.5% stake in the business.
This, inevitably, raises questions about why Huang is selling instead of holding.
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.
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.
‘Huang selling shares doesn’t look good’
Huang is selling his shares under a very specific plan—a Rule 10b5-1 agreement—which allows executives and employees to buy or sell stock in their own company without violating insider trading laws by using a predetermined schedule.
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.
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.
This, according to Nell Minow, vice chair of corporate governance specialists ValueEdge Advisors, is not a good look.
Minow, who also owns shares in Nvidia herself, explained to Fortune: “What I want from an executive [is] to be very bullish on the stock. I want the executive to be thinking all the time: ‘Boy this is really going to be worth a lot more soon’ and not ‘Oof I better sell some because I’m … experiencing the vertigo of having all my eggs in one basket.’”
“I want all of their eggs in one basket.”
This year isn’t the first time Huang has employed a Rule 105b-1—though it is a more tenacious selloff than previous trades.
In September last year, 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.
Huang wasn’t the only Nvidia exec to confirm a Rule 10b5-1 trading agreement in the April filing.
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.
“It signals that the stock has jumped tremendously and they’re getting a little nervous about it,” Minow believes. “It’s certainly concerning for investors, we ask ourselves: ‘Well maybe I should be selling mine too. What are they telling me? If they don’t have the confidence in the stock, then why should I?’”
Fortune 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.
Nvidia told Fortune: “Mr. Huang’s sales are based on a 10b5-1 plan, in which the price, amount and dates of the sales are established in advance.”
Calming the ripple effect
James Reda is a managing director at Chicago-based consultancy Gallagher’s HR and compensation practice. He has worked on a number of high-profile compensation cases, from Howard Schultz at Starbucks in the early 2000s to advising on Satya Nadella’s Microsoft package.
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.
“If you just dump that in the market the stock’s going to go down,” Reda told Fortune. “So you have to be very sensitive about it … If you have a large position that some of these founders and CEOs have, it could be a better strategy.
“I’ve seen a lot of cases where things are executed improperly and the stock tanks. Not because people think something’s going on and all that stuff, but the excess supply. The market’s confused about what they do with it.”
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’t be caught off guard.
And while some analysts like Minow want founders to be singularly focussed on their own stock, Reda disagrees: “Ultimately if you don’t sell the stock you’re gonna have to be like Elon Musk and some others that are putting stock up for collateral and getting these humungous loans.”
“That just makes everybody more leveraged, why do that? Peel off a little stock on a regular basis and sell it.”
Too much stock?
A look through the SEC filings of every Big Tech company presents a range of often complex compensation provisions. Meta’s Zuckerberg is famously paid a single dollar for his salary but takes $24.4m in security costs. Apple’s Tim Cook has performance-based restricted stock units in a compensation package worth $49 million. Alphabet’s Sundar Pichai is given a triennial stock grant which led to a $226m payday in 2022.
The range of options also reveals a common practice in Silicon Valley: CEOs—particularly founders—are 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.
Nvidia’s 2024 proxy filing 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.
The filing also revealed Huang’s holdings in Nvidia prior to the stock sales beginning this spring, with the figure sitting at more than 93 million shares—3.79% of the business.
This is a sign that Huang has been given too much stock, Minow believes.
In her estimation, Huang’s shares should be locked in “golden handcuffs”—meaning he can’t sell until years after he leaves the business.
“Stop giving him stock. He’s clearly got too much and that’s why he’s getting rid of it,” Minow said. “The marginal value of additional stock grants is negligible.”
Nvidia has a ‘pay for performance’ strategy, per its SEC filing, based on revenue, operating income and shareholder return relative to the S&P 500.
But Minow wants more detail. She said: “I would create very specific goals—and this is the job of the board—around market share, innovation, expansion, improving operations. Whatever the board decides the priorities should be.”
“And let the market know what those goals are. That helps us as investors know if it’s something that we want to participate in.”
The succession plan, or lack thereof
The board itself presents further potential for improvement, in Minow’s opinion. Of the 12 individuals on the $2.93 trillion company’s board, only one cites experience in “’corporate governance” in their official biography (although some of the others have served on other boards).
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’t lead forever.
“His board of directors [are] very strong on technology, not as much on corporate governance,” Minow explains. “I would really like to see them say: ‘We have a process in place to make sure we’re cultivating our top people, making sure we have a deep bench, here’s how we’re going about it.’
“We don’t need a name but they need to be very forthright about the value that Huang presents and that they’re taking very seriously the idea that he could just decide to go spend his money …. they’ve got to be prepared for that.”
Huang, famed for his never-off work schedule and endless pushes for perfectionism, is the beating heart of Nvidia—and he has a price tag attached.
“Huang is the heart and soul of the company, his reputation is almost as important as the quality of the product,” Minow adds. “Particularly when you’re talking about the [15th] richest man in the world—how do you keep him motivated? It’s certainly not by allowing him to diversify his holdings.”
“I would give him more of his compensation in cash tied to very specific, quantifiable goals.”
Fortune asked Nvidia what its succession plan was and whether it would be more transparent with shareholders about compensation practices. Nvidia declined to comment.
What does a post-Huang Nvidia look like?
A push for transparency is needed across the market, says Aalap Shah, managing director at compensation and leadership consultancy firm Pearl Meyer.
Some of the pillars of American commerce already learned the lesson: Just ask JP Morgan’s Jamie Dimon who has been open about the banking behemoth’s succession planning process—even naming his “hit-by-a-bus CEO.”
Elsewhere Morgan Stanley was subject to immense speculation prior to its selection last year of Ted Pick to replace James Gorman.
“We should be significantly more transparent than we are currently about succession planning,” Shah tells Fortune. “From my perspective for an incoming CEO … 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.”
“When 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.”
