Reddit removes CEO pay incentives in signal of reduced hopes for IPO

Reddit made changes to chief executive Steve Huffman’s pay shortly before reviving plans to go public, removing incentives based on the company hitting a $25bn valuation in a signal of reduced hopes for a blockbuster IPO.

According to company filings, the social media company in December cancelled chief executive awards that were tied to the company hitting the ambitious market capitalisation following a stock market debut.

However, Huffman has retained restricted stock units eligible to vest if Reddit attains an average $5bn market value for 10 consecutive days. Updated filings show that this is in line with the company’s latest market valuation forecast. The RSUs could be worth about $21mn.  

The adjustment shows how far Reddit has downgraded expectations for the first major tech listing of the year. The company confidentially filed paperwork for an IPO in 2021 but opted to delay amid rising interest rates and falling tech stock prices. 

It is expected to list shares on the New York Stock Exchange next week at a sharp discount to its most recent valuation as a private company of $10bn. 

Sven Riethmueller, a professor of law at Yale Law School who has researched executive pay amendments, called the late change to Huffman’s incentives troubling from an investor perspective. “I would argue that Reddit’s board did not create a compensation package to incentivise its CEO to grow stock value significantly post-IPO,” he said.  

Some of the chief executive’s awards remain linked to a higher valuation for the company. Huffman is eligible for stock options with exercise prices that exceed the expected IPO price. Chief operating officer Jennifer Wong also has performance-related awards that are still linked to Reddit attaining a $25bn market value.

Reddit declined to comment, citing the quiet period before an IPO.

Huffman, known on Reddit by his username “spez”, co-founded the company in 2005 with Alexis Ohanian. He left in 2009, returning six years later as chief at a difficult time for the organisation and went on to expand the user base and strengthen the advertising business. 

Delaying the IPO means Reddit has also had the chance to diversify revenue beyond advertising before attempting to join markets. It facilitates ecommerce marketplaces on the platform and licences access to its data to companies who want to train their artificial intelligence models. Revenues rose more than 20 per cent to $804mn last year. 

However, the company has yet to report an annual profit. It recorded a net loss of almost $91mn in 2023.