Meta has agreed to provide Mark Zuckerberg with additional stock to compensate him if California's proposed billionaire tax passes in November, according to a financial disclosure filed Wednesday.
The one-time tax would impose a 5% levy on residents with a net worth exceeding $1bn. Zuckerberg, whose wealth is estimated at over $200bn, would likely owe around $10bn under the measure. He told Meta's board last month he was considering relocating his primary residence from California and selling his state properties, citing concerns that such a move "would be public and inevitably noted and commented upon by company employees."
Meta's board responded by creating a new class of stock and structuring what the company calls a "Founder Alignment Agreement" to give Zuckerberg additional shares that he can sell quarterly. The arrangement lasts eight years as long as Zuckerberg remains a California resident, and applies regardless of whether the tax passes.
Meta justifies the deal as necessary to keep Zuckerberg leading the company through what the board calls a "dramatic and unprecedented transformation" driven by artificial intelligence competition. The company directly referenced problems during the Covid-19 pandemic when Zuckerberg worked from his Hawaii compound, leading to mass layoffs and restructuring after a period of excess hiring and a failed pivot to the metaverse.
The company plans to spend as much as $145bn this year on AI projects and has increased its quarterly AI spending targets throughout 2024. This spending surge has pushed Meta into negative cash flow for the first time since going public 14 years ago. Chief Financial Officer Susan Li said Wednesday that the stock arrangement would also help finance future AI spending.
California is home to approximately 225 billionaires, according to Americans for Tax Fairness. Zuckerberg's estimated effective California tax rate has been less than 1% annually in recent years.
Investors appeared skeptical of Meta's massive AI spending without clear new revenue streams. The company's shares fell more than 7% on Thursday, erasing over $100bn in market value.