stock, ceoI have been reading this article, where Jeff Bezos sells some of his holdings in Amazon, as stock. So, what does this exactly mean?
My first intuition is that he is giving away some part of his %age holding in the company to someone else. Is it true?
If yes, then why is he doing so. By doing so, he’s losing a bit of his share in the company.
If not, then where did I go wrong in understanding the article?
My first intuition is that he is giving away some part of his %age holding in the company to someone else. Is it true?
The CEO is not giving away - the CEO is selling a part of his/her holdings in the company.
The primary reason a CEO does this is for “diversity”. It’s likely that almost all of a CEO’s wealth is tied to a single company. That is a bad investment strategy because if, for example, it turns out that Amazon stole Microsoft technology and their stock becomes worthless through no fault of Mr Bezos (assuming that is also true), then he goes from very wealthy to very poor… very fast. Divesting helps prevent this.
Second, he may just need to pay some bills. After all, for a guy worth $30 billion, his $80,000 salary may not keep up with his spending habits. His total compensation is more like $1.7 million. But still, if he decides to spend $10 million on a plane, he’d have to wait a very long time unless he sold some shares.
Third, the CEO may actually be concerned about the health of the company. That’s really unlikely because they should probably go looking for another job rather than wait for the company to collapse. If a CEO knows a company has problems, it’s best to leave ASAP and let some other hapless CEO take the blame.
Last, sometimes there are ownership restrictions for shares, etc. In other words, the CEO may legally be forced to sell shares in order to reduce their holdings in order to abide by SEC regulations, contracts with other companies, contracts with the government and/or restrictions on the shares themselves.
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