GameStop rises after announcing package for CEO Ryan Cohen that completely ties his pay to the company’s value and profits

GameStop is rising in premarket trading after the company announced a long-term performance package for Chairman and CEO Ryan Cohen that completely tethers his financial interests with those of shareholders as well as the company’s operational performance.

Under this plan, Cohen would receive options that enable him to purchase 171.5 million shares of GameStop at $20.66 apiece — but only if the market valuation of the company exceeds certain thresholds and GameStop generates enough cumulative earnings before interest, taxes, depreciation, and amortization (EBITDA).

So Cohen can’t benefit personally from another meme stock surge in the stock unless that’s combined with a continued increase in profitability.

“Under the award, Mr. Cohen receives no guaranteed pay — no salary, no cash bonuses, and no stock that vests simply over time,” per the press release. “Instead, his compensation is entirely ‘at-risk,’ meaning he will only be paid if the Company achieves significant market and operational goals.”

The package is divided into nine tranches, each with a different market cap and cumulative EBITDA hurdle. The first tranche vests if GameStop clears a $20 billion market cap while the company generates $2 billion in EBITDA under his leadership. Per GameStop, Q1 2026 will be the starting point from which this EBITDA performance hurdle will be tracked.

On a closing basis, GameStop has exceeded this $20 billion threshold only during its 2021 meme stock mania. And because of heavy losses from 2019 through early 2022, it’s taken the retailer a full decade to generate its latest $2 billion in cumulative EBITDA on an adjusted basis.

The milestones for different tranches to vest run in increments of $10 billion (up to $100 billion) for market cap, and $1 billion (up to $10 billion) for EBITDA.

Cohen’s key moves as leader of the retailer have been to lean into collectibles, which have seen massive growth, while pursuing an aggressive cost-cutting campaign to improve its financial position. And, I suppose, doing the bitcoin treasury thing.

This new package is subject to approval by shareholders, a vote that Cohen will recuse himself from.

Mr. Blue Sky

So, just how much could this be worth to Cohen, if he somehow turns the ailing retailer into a profitable machine worth more than Nike? Well, let’s just say he won’t be missing his salary.

At a $100 billion market cap with the current share count, GME’s stock would trade at about $223. That would imply Cohen’s stock options to purchase 171.5 million shares at $20.66 would be worth an eye-watering $34.7 billion.

But that, unfortunately, is too simple. Because each tranche vests in turn, and because GameStop is offering over a third of its current shares outstanding, we have to take the dilution into account, which would impact all shareholders, Cohen included.

Assuming all of the awards were exercised upon being hit — e.g. the first 10% coming after the first tranche, the next 20% after the second, etc. — GameStop’s shares outstanding will soar once again.*

The whole GME pizza will be worth the same, but there’ll be a lot more slices with each tranche — about 17 million more... and they’ll all be owned by Cohen. Here’s a table showing the mechanical impact of each threshold being hit, on a very theoretical (and aspirational) GME share price.

Taking the napkin math above, this would mean Cohen’s 171.5 million stock options would be worth closer to $24 billion.

Of course, what will really break your brain is the fact that markets are forward-looking and traders would be adjusting in real time as each dilutive milestone approached.

*The company made the most of its elevated stock price during its meme stock fame, turning its balance sheet into a fortress.