Compensation and Separation Arrangements for WeWork CEO

Joseph Bachelder is special counsel at McCarter & English, LLP. This post is based on an article by Mr. Bachelder published in the New York Law Journal. Howard Berkower, a partner with the firm, and Andy Tsang, a senior financial analyst with the firm, assisted in the preparation of the article. Related research from the Program on Corporate Governance includes The CEO Pay Slice by Lucian Bebchuk, Martijn Cremers and Urs Peyer; and the book Pay without Performance: The Unfulfilled Promise of Executive Compensation by Lucian Bebchuk and Jesse Fried.

Today’s post examines the extraordinary compensation and separation arrangements entered into in 2019 with Adam Neumann by The We Company (better known as WeWork) and SoftBank Group (SoftBank), the latter being a Japanese-based multinational conglomerate investing in a wide variety of businesses including WeWork.

Mr. Neumann co-founded WeWork in 2010, serving as its CEO until September 2019 and as Chairman of the Board until October 2019. The principal business of the WeWork enterprise has been to acquire, by leasing, space in office buildings, outfit the space and then rent it to individuals and enterprises in need of commercial space.

According to the S-1 Filing, noted in the next paragraph, WeWork’s revenue grew from $436 million in 2016 to $1.822 billion in 2018, a 318% increase. However, WeWork posted a loss in each of the years in the three-year period 2016-2018—and, in fact, its loss grew from $430 million in 2016 to $1.611 billion in 2018, a 275% increase. For the six months ending June 30, 2019, WeWork reported a revenue of $1.535 billion and a loss of $690 million.

On August 14, 2019 WeWork filed a registration statement on Form S-1 with the SEC in anticipation of an IPO. (Two amended versions of the Form S-1 were subsequently filed, one on September 4 and one on September 13. References in this post to the “S-1 Filing” are to the amended version of the Form S-1 as filed on September 13.)

After deciding to postpone its IPO, WeWork withdrew its S-1 Filing with the SEC on September 30, 2019. WeWork appeared to have been running out of cash and, on October 22, WeWork and SoftBank jointly announced that WeWork was entering into funding arrangements with SoftBank, the principal investor in the company. According to the announcement, SoftBank agreed to:

  1. provide loans to WeWork, including a credit facility, totaling approximately $5 billion;
  2. accelerate an additional $1.5 billion investment in WeWork that it had previously agreed to; and
  3. make a tender offer for up to $3 billion of outstanding WeWork stock.

According to the announcement, “[a]fter closing, and following the tender offer, SoftBank’s fully diluted economic ownership of WeWork will be approximately 80 percent.”

In late September 2019 Mr. Neumann stepped down as CEO but continued for a brief time as Chairman of the Board. At the end of October 2019 Mr. Neumann stepped down as a member of the Board. WeWork announced on October 30, 2019 that Mr. Neumann “has become a Board observer, and the Board has received voting control over his shares.”

The Neumann Compensation/Separation Arrangements

Following is a discussion of the extraordinary compensation and separation arrangements made by WeWork and SoftBank with Mr. Neumann during 2019.

1. WeWork stock option grant to Mr. Neumann. In March 2019 WeWork made a very large stock option grant to Mr. Neumann. According to the S-1 Filing noted above, the purpose of the option grant was, at least in part, to incentivize Mr. Neumann to take WeWork public. The option grant was for 42,473,167 shares of common stock representing approximately 12% of the fully diluted economic ownership in WeWork at the time of grant. (The percentage is estimated by the author based on the S-1 Filing. The calculation excludes from “fully diluted economic ownership” the option itself as well as other options and warrants outstanding at time of the option grant.) The S-1 Filing states that the option had a per-share exercise price equal to the fair market value of a share of common stock on the grant date. The per-share exercise price was not specifically provided in the S-1 Filing; however, a per-share exercise price of $38.36 was derived from information disclosed in the S-1 Filing, indicating a total value of the shares underlying the option on the date of grant of $1.629 billion.

(At the time of the S-1 Filing, the stock structure of WeWork included three classes of common stock and several classes of preferred stock. A discussion of these different classes of stock is beyond the scope of today’s post. Discussion of the different classes of common stock is provided at pages 190 to 192 of the S-1 Filing and discussion of the different classes of preferred stock is provided at pages F-113 to F-115 of the S-1 Filing.)

2. Time-vesting and performance-vesting features of the March 2019 option. The March 2019 option was comprised of two portions as follows:

  • Portion subject to time-vesting only. Approximately 22% of the option (covering 9,438,481 shares) was subject to time-vesting only (e., it was not subject to any performance conditions). Vesting was pro rata on a monthly basis over a five-year period following the date of option grant.
  • Portion subject to performance conditions followed by time-vesting. The remaining approximately 78% of the option (covering 33,034,686 shares) was subject to attainment of the following performance targets and, after that, time-vesting, as follows:
    • IPO requirement. As to approximately 22% of the option (covering 9,438,481 shares), vesting was contingent upon completion of an IPO.
    • Market cap targets. As to approximately 56% of the option (covering 23,596,205 shares), vesting was contingent upon attainment of market cap targets as follows: $50 billion (as to approximately 17% of the option), $72 billion (as to approximately 17% of the option) and $90 billion (as to approximately 22% of the option).
    • Additional time-vesting requirements. In addition to the applicable performance targets (e., the IPO and market cap targets just described), the performance-based portion of the option (78% of the option) was subject to time-vesting requirements varying from two to five years following the attainment of the applicable performance target, with vesting occurring on a monthly basis over the applicable two-to-five-year period.

3. Exercise by Mr. Neumann of the time-vesting portion of the stock option (22% of the option covering 9,438,481 shares). In April 2019 Mr. Neumann exercised the time-vesting portion of the March 2019 option to purchase 9,438,481 shares of common stock at $38.36 per share. WeWork made a loan to Mr. Neumann for an amount equal to the aggregate exercise price for the time-vesting portion of the option, approximately $362.1 million. The WeWork shares acquired upon the option exercise were subject to the same time-vesting requirements as the portion of the option exercised (as described in paragraph 2(a) above).

4. Exchange by Mr. Neumann of (i) the unexercised portion of the stock option and (ii) the shares acquired by him upon partial exercise of the option for two profits interest

  1. Performance-plus-time-vesting profits interest grant. On July 16, 2019 Mr. Neumann received a grant of 33,034,686 units representing a “profits interest” in The We Company Management Holdings L.P., a partnership through which WeWork holds all of its assets (the “profits interest units”). In exchange for the profits interest grant, the unexercised portion of the March 2019 option covering 33,034,686 shares as described in paragraph 2(b) above was canceled. These profits interest units were subject to the same vesting provisions as the option surrendered (described in paragraph 2(b) above).
  2. Time-vesting profits interest grant. On August 12, 2019 Mr. Neumann received 9,438,481 profits interest units following Mr. Neumann’s surrendering of the 9,438,481 shares he acquired upon exercise of the time-vesting portion of the March 2019 option. (In connection with the surrendering of the shares, the $362.1 million loan WeWork made to Mr. Neumann noted above, was ) These profits interest units were subject to the same vesting provisions as the shares surrendered (as discussed in paragraph 3 above).

The profits interests acquired in July and August 2019 (in exchange for the remaining unexercised portion of the option plus shares) represented interests in the growth in value of WeWork after the date of the option grant in March 2019. Thus, in certain respects, the economics of the profits interests resembled the economics of the original March 2019 option grant. See pages 205-206 of the S-1 Filing for further discussion of the profits interests.

5. Separation arrangements entered into with Mr. Neumann. Following is a summary of Mr. Neumann’s separation arrangements as reported in the Wall Street Journal October 22, 2019:

  1. Neumann will be paid a $185 million consulting fee by SoftBank. (According to the October Wall Street Journal article, “Mr. Neumann has promised to work exclusively with the company [WeWork] for four years.”)
  2. Neumann will be given the right to sell to SoftBank approximately one-third of his WeWork shares for $970 million.
  3. SoftBank will extend credit to Mr. Neumann for $500 million to enable Mr. Neumann to pay off loans made to him by several banks.

See Maureen Farrell and Eliot Brown, “SoftBank to Boost Stake in WeWork in Deal That Cuts Most Ties With Neumann,” Wall Street Journal (Oct. 22, 2019).

Minority Shareholder Lawsuit Filed in November 2019

A class action and derivative complaint was filed in the Superior Court of the State of California for the County of San Francisco on November 4, 2019 by a minority shareholder, Natalie Sojka, on behalf of herself and all others similarly situated and derivatively on behalf of WeWork against Mr. Neumann, WeWork directors and SoftBank. The complaint alleges breach of fiduciary duty, aiding and abetting breach of fiduciary duty, corporate waste, unjust enrichment, abuse of control and declaratory and injunctive relief.

The complaint covers, among other things, the Neumann separation arrangements. It does not cover the March 2019 stock option grant or the two profits interest grants exchanged for the unexercised portion of the stock option and shares as discussed above.


Mr. Newmann’s 2019 compensation and separation arrangements with WeWork/SoftBank are noteworthy for several reasons.

  • Compensation arrangements. The March 2019 option grant was extraordinary in its size, covering shares that represented approximately 12% of WeWork at the time of grant. The author is aware of two other stock option grants of a magnitude similar to the option grant made by WeWork to Mr. Neumann. In January 2018 Tesla granted a 12% stock option to its co-founder CEO Elon Musk and in February 2018 Axon Enterprise granted a 12% stock option to its co-founder CEO Patrick Smith. (See the following NYLJ Columns for the author’s discussions on those option grants: “Tesla’s Stock Option Grant to Its CEO” (May 1, 2018), “Tesla’s Stock Option Grant to Elon Musk: Part 2” (June 22, 2018) and “Another Look at ‘Super Options’” (Jan. 3, 2019).)
  • Separation arrangements. The separation arrangements entered into by Neumann following his stepping down as CEO are also extraordinary: the payment by SoftBank to Mr. Neumann of a $185 million consulting fee, Mr. Neumann’s right to sell approximately one-third of his WeWork shares to SoftBank for $970 million (as part of a $3 billion tender offer by SoftBank) and the $500 million credit extension by SoftBank to Mr. Neumann. The separation arrangements appear to have been entered into in consideration for Mr. Neumann’s stepping down from the Board and giving to the Board voting control of his shares in WeWork, as well as his giving up other rights and undertaking other obligations, including the obligation to “work exclusively” with WeWork for four years. The author has not had access to the agreement, or agreements, providing for these arrangements. Whatever facts and circumstances are taken into account, however, it is difficult to find precedent for the arrangements entered into with Mr. Neumann in connection with his separation from WeWork.
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