July 31 can’t come soon enough for several GameStop executives, including CEO George Sherman, who are slated to exit the video game retailer at that time in a management reorganization driven by incoming chairman of the board Ryan Cohen, co-founder/CEO of online pet supply service Chewy.com.
Sherman, CFO James Bell, chief customer officer Frank Hamlin, and chief merchandising officer Chris Homeister all have provisions in their contracts that call for expedited vesting of stock options, Wall Street-based restricted shares that can drive executive compensation into the stratosphere — with no tax liability for the company.
For example, Netflix co-founder/co-CEO Reed Hastings exercised more than 1.33 million stock options in 2020 worth more than $612 million — taxes on which Hastings, not Netflix, is responsible for.
For Sherman & Co., the payday won’t be as large, but still significant considering they are being forced out at a time when GameStop shares are trading at atypical highs due in part to a third-party turf war between individual investors and established hedge funds.
Sherman, who through the middle of the month was the largest individual shareholder, inexplicably agreed to give up $47 million in stock options and $5 million in cash as part of a severance agreement that will enable him to exercise 1.1 million in stock options worth $169 million at market close on April 23.
Bell and Homeister each have restricted shares worth $43.6 million, while Hamlin’s stock options are worth $33.5 million on paper. All three executives reportedly could receive even more as a result of performance-based clauses in their employment contracts — performance that had little to do with their management, and much more to do with market manipulation and Wall Street politics.
GameStop shares traded at $19 per share at the end of 2020. But when Cohen — reportedly a darling among individual investors — began buying shares, online trading forums on Reddit caused a crowdsourcing of sorts among followers that saw the retailer’s shares reach of peak of $483 per share in late January. In the process, some hedge funds nearly went bankrupt betting the stock would decline, or short.
“In fairness, George may have asked for this,” said Wedbush Securities media analyst Michael Pachter. “He lost all of his hand-picked executive lieutenants [with Cohen’s arrival].”
Regardless, GameStop shares opened April 26 down at $149 per share. Bank of America values the stock at $10 per share. For Sherman & Co., the next 90+ days could be maddening.