The board of directors of Nasdaq-listed Software-as-a-Service firm Freshworks cancelled the CEO Perfomance Award of six million stock units allotted to founder and CEO Girish Mathurbootham in 2022 citing changes in performance targets due to tough macroeconomic conditions.
“As a result of macroeconomic conditions that are entirely outside the control of the company’s leadership team, the stock price hurdles were too far ahead of the current stock price for the CEO PRSU (Performance-based Restrictive Stock Units) award to have the retention value expected at the time the award was granted,” the SEC filings showed on February 16.
However, Mathrubootham is now entitled to a new annual long-term equity incentive award with a fair value of $19 million.
“In determining to cancel Mr Mathrubootham’s CEO PRSU award and grant him an annual long-term equity incentive award in 2024, the Board and the Committee considered the fact that the long-term equity incentive program is an investment the Company has asked of its stockholders,” the SEC filing stated.
The long-term equity is based on a mix of time of service and performance-based achievements and it better aligns with our objectives as a public company, the firm said in a response to Moneycontrol's queries.
"The recent change in our CEO’s compensation plan underscores our objective to create a reasonable and balanced pay-for-performance program to motivate and retain our executives by rewarding them based on Freshworks’ financial and operational achievements," the statement further added.
In 2021, when Freshworks went for its Initial Public Offering, the board granted a multi-year performance-based restricted stock unit award or CEO PRSU award to Mathrubootham for 6 million shares with vesting contingent upon achievement of both time- and performance-based conditions. Mathrubootham also received 3 million restricted stock units that were meant to vest over four years which he will continue to hold.
The CEO Performance Award had a total grant date fair value of $131.0 million. Freshworks' total stock-based compensation expense for 2023 was $212 million.
To receive 100 percent of the award, the board had said in 2021 that the stock price would need to average at least $200 for two months before January 2029. Freshworks' stock price has significantly come down to $20 per unit presently as against $36 per unit at the time of IPO.
The Freshworks board has also approved an annual equity incentive award to the company’s President Dennis Woodside for a fair value of $15 million; to the Chief Financial Officer Tyler Sloat for a fair value of $6 million; and to the company’s Chief Product Officer Srinivasagopalan Ramamurthy for a fair value of $6 million.
Around 70 percent of the equity incentive will be granted in the form of time-based restricted stock units (RSUs) which means it will vest in equal quarterly installments over four years, beginning March 1, 2024, subject to the recipient’s continued service as of each vesting date.
The remaining 30 percent will be granted in the form of performance-based restricted stock units (RSUs) which means the RSUs will be granted based on the Company’s achievement of revenue and free cash flow targets.
Apart from the RSU's the board has also approved a special refresh equity award with a fair value of $4 million to the firm's CFO Sloat. "The special refresh equity award is a time-based RSU award that vests in equal quarterly installments over two years from the grant date, subject to Mr. Sloat’s continued service with the Company through each vesting date," the SEC filing said.
The Arc reported the development first.
Freshworks posted a consolidated revenue from operations rose 20 percent year-on-year to $596.4 million for the full year 2023. In 2022, Freshworks reported consolidated revenue from operations of $498 million for the full year 2022, up around 34 percent year-on-year.
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