Although Huang has been working for Nvidia for more than 30 years, the chip manufacturer’s share price only really started to rise in the last twelve months or so – and this is accompanied by the development that is being viewed critically.

Investors are mostly enthusiastic about their bet on the company from Santa Clara, California, and on the man Mark Zuckerberg called the “Taylor Swift of technology.”

But Nvidia’s rapid growth has raised questions among some experts about whether the company’s corporate governance has also evolved as quickly.

They point out that CEO Huang has been selling shares worth around $14 million almost every day for months this summer. He still holds a stake of over 3.5 percent in the company.

This inevitably raises the question of why Huang is selling rather than holding on to his shares.

And that, in turn, raises the question of why Huang owns so many shares in the first place and whether his compensation package encourages the performance that shareholders want to see.

Investors want more information about the top management. They want more transparent corporate governance, open succession planning and a change in the salary structure to motivate the next generation of management, according to executive compensation experts who are familiar with Assets.

“Huang’s share sale does not look good”

Huang is selling his shares under a very specific plan – a Rule 10b5-1 agreement – that allows executives and employees to buy or sell shares of their own company on a predetermined schedule without violating insider trading laws.

Rule 10b5-1 contains a number of specific requirements, most notably that a formula for sales (not an individual) must be used to determine the number, price and date of the trade, and that a third party beyond the control of the customer must be used to execute the sales.

So even if Huang doesn’t have to worry about insider selling, the fact remains that he decided to sell after a period of high stock performance and a subsequent slump.

According to Nell Minow, vice chair of corporate governance specialist ValueEdge Advisors, this is not a good picture.

Minow, who also owns shares in Nvidia, told Assets: “I expect a manager to be very optimistic about the stock. I want the manager to think all the time, ‘Boy, this is really going to be worth a lot more soon’ and not ‘Ugh, I better sell something because I’m … feeling dizzy about putting all my eggs in one basket.'”

“I want them to put all their eggs in one basket.”

This year is not the first time Huang has used Rule 105b-1, but it is a more stubborn sell-off than previous transactions.

Last September, for example, Huang sold 237,500 shares worth just over $117 million under a 10b5-1 trading agreement. This year, however, Huang sold $323 million worth of Nvidia stock in July alone.

Huang was not the only Nvidia executive to confirm a Rule 10b5-1 trading arrangement in the April filing.

Debora Shoquist, Executive Vice President of Operations, Colette M. Kress, Executive Vice President and CFO, and Ajay K. Puri, Executive Vice President of Worldwide Field Operations, announced similar plans.

“It’s a sign that the stock has risen enormously and that’s making them a little nervous,” Minow believes. “It’s certainly worrying for investors, we’re asking ourselves: ‘Maybe I should sell mine too. What are they trying to tell me? If they don’t have confidence in the stock, why should I?'”

Assets Nvidia has asked for comment on how many shares Huang plans to sell in total and when his sell-off will end. The company did not respond to the question.

Nvidia said Assets: “Mr. Huang’s sales are based on a 10b5-1 plan in which the price, quantity and dates of the sales are set in advance.”

Calming the ripple effect

James Reda is managing director of the human resources and compensation practice at Chicago-based consulting firm Gallagher. He has worked on a number of high-profile compensation cases, from the Howard Schultz case at Starbucks in the early 2000s to advising on Satya Nadella’s Microsoft package.

We asked him why Huang sells his shares little by little, day by day, instead of selling larger amounts at once.

“If you just throw that on the market, the stock will fall,” Reda said Assets“So you have to be very sensitive… If you’re in a position as important as some of these founders and CEOs, that might be a better strategy.”

“I’ve seen many cases where things weren’t done right and stock prices collapsed. Not because people think there’s something going on or anything, but because there’s an oversupply. The market is confused and doesn’t know what to do with it.”

The fact that Huang sells almost daily rather than at longer intervals is also no surprise to Reda. The 10b5-1 plan is public, so the markets are informed about the inflow of shares and are not surprised.

And while some analysts like Minow want founders to focus exclusively on their own stocks, Reda disagrees: “If you don’t sell the stocks, you end up having to do what Elon Musk and some others have done, putting up stocks as collateral and taking out these huge loans.”

“That just increases everyone’s debt. Why do that? Get rid of a few shares regularly and sell them.”

Too much inventory?

A look at the SEC filings of all Big Tech companies reveals a series of often complex compensation provisions. Meta’s Zuckerberg famously receives just one dollar in salary but has to spend $24.4 million on security costs. Apple’s Tim Cook receives performance-based restricted stock units in a compensation package worth $49 million. Alphabet’s Sundar Pichai receives stock grants every three years that will bring him a payout of $226 million in 2022.

The range of options also reveals a common practice in Silicon Valley: CEOs – and especially company founders – often receive shares on an ongoing basis – not only so that they feel they have power over a rapidly growing empire, but also because this is an effective method of motivating the people at the top.

Nvidia’s fiscal 2024 proxy statement shows that Huang received a salary of $996,514, with stock grants valued at $26 million and additional cash awards of $4 million. His total compensation package was worth approximately $34.17 million.

The documents also revealed Huang’s stake in Nvidia before the share sales began this spring: they amounted to over 93 million shares – 3.79 percent of the company.

Minow believes this is a sign that Huang has been given too much influence.

In their view, Huang’s shares should be placed in “golden handcuffs,” meaning he cannot sell them until years after he leaves the company.

“Stop giving him stock. He obviously has too much and that’s why he’s getting rid of it,” Minow said. “The marginal value of additional stock grants is negligible.”

According to its SEC filing, Nvidia follows a pay-for-performance strategy based on revenue, operating profit and shareholder return relative to the S&P 500.

But Minow wants more details. She said: “I would set very specific goals – and that’s the board’s job – in terms of market share, innovation, expansion and improving operations. Whatever the board decides, that should be the priorities.”

“And let the market know what those targets are. That helps us as investors know if it’s something we want to participate in.”

The succession plan or lack thereof

The board itself, in Minow’s opinion, offers further room for improvement. Of the twelve people on the board of the $2.93 trillion corporation, only one states in his official biography that he has experience in “corporate governance” (although some of the others have served on other boards).

Minow also wants Nvidia to check off the company’s to-do list by informing the market of a successor to the CEO. After all, CEOs can’t lead forever.

“His board is very focused on technology, less on corporate governance,” Minow explains. “I would really like to hear them say, ‘We have a process in place to make sure we’re developing our top people and making sure we have a diverse workforce. And this is how we do it.’

“We don’t need a name, but they need to be very open about the value that Huang represents and that they take very seriously the idea that he might just decide to spend his money… they need to be prepared for that.”

Known for his never-ending work schedule and endless drive for perfectionism, Huang is the beating heart of Nvidia – and he has a price tag on him.

“Huang is the heart and soul of the company, his reputation is almost as important as the quality of the product,” Minow adds. “Especially when it comes to the (15th) richest man in the world – how do you motivate him? Certainly not by allowing him to diversify his holdings.”

“I would give him a larger portion of his compensation in cash and tie it to very specific, quantifiable goals.”

Assets asked Nvidia what its succession plan was and whether it would be more transparent with shareholders about its compensation practices. Nvidia declined to comment.

What does an Nvidia look like after Huang?

According to Aalap Shah, managing director of compensation and leadership consultancy Pearl Meyer, more transparency is needed across the entire market.

Some of the pillars of the American economy have already learned their lesson: Just ask JP Morgan’s Jamie Dimon, who speaks openly about the banking giant’s succession planning process and even mentions the name of its “CEO who was hit by a bus.”

Elsewhere, Morgan Stanley was the subject of immense speculation before it selected Ted Pick to succeed James Gorman last year.

“We should be much more transparent about succession planning than we currently are,” says Shah Assets“In my view, succession planning is one of the five most important tasks of a new CEO. For me, this is a sign that a company is really looking to the future and is giving appropriate consideration to corporate governance.”

“If succession planning is not transparent and carefully thought out, hasty decisions have to be made, and that is the cause of volatility from the perspective of shareholders and investors.”