Meta has reached a new agreement with chief executive Mark Zuckerberg to prevent him from leaving California due to a proposed state tax on billionaires, according to a financial report published on Wednesday. The deal, for a man whose wealth is estimated at more than $200 billion (£149 billion), grants him additional Meta shares to offset part of the wealth he could lose if the tax is approved by voters in November.
The proposed measure would introduce a one-off tax of 5 per cent on residents with a net worth exceeding $1 billion. This would likely mean the Facebook co-founder pays around $10 billion in additional state taxes. His estimated effective tax rate in California has been less than 1 per cent each year. California is home to most of America's tech giants, and approximately 225 billionaires live in the state, according to the campaign group Americans for Tax Fairness, with the wealth of such individuals, including Zuckerberg's, having risen sharply in recent years.
Zuckerberg told Meta's board last month that he was considering moving his primary residence out of California, and even selling his property in the state. His main homes in California are in Palo Alto and Lake Tahoe. Such a move "would be public and inevitably noticed and commented on by company employees," Zuckerberg told the board, and would also "raise questions about the company's governance in the future".
In response, Meta decided to create more shares in the company to give Zuckerberg a way to essentially offset any wealth he might lose due to the tax proposal. Through a so-called stock split announced by the company on Wednesday, Meta created a completely new class of shares and gave one new share to each existing shareholder. Zuckerberg is one of the company's largest shareholders and is known to control the company through the design of his ownership. Under the agreement, he will receive more shares, more frequently, and will also be able to sell them quarterly, according to the company's financial filing. The shares will not change his level of control over Meta, but will allow him to more easily monetise the company's value. The deal appears to be effective even if the one-off California tax does not pass, and will last for eight years – as long as Zuckerberg remains a California resident.
Meta called the agreement with Zuckerberg its "Founder Alignment Agreement", stating it was "critically important" to keep him leading the company from California given the "dramatic and unprecedented transformation taking place in the technology industry and global economy related to artificial intelligence". The company alluded to problems it experienced during the Covid-19 pandemic, when Zuckerberg began working out of the office and mostly from his large compound in Kauai, Hawaii. Following a rise in Meta's headcount during the pandemic, a whistleblower scandal that led to a renewed focus on child safety and a company-wide pivot to building the "metaverse" – which included renaming the company from Facebook to Meta – the firm began mass layoffs and restructuring. Layoffs continued this year, with the company's headcount falling 15 per cent compared to last year, meaning it has laid off at least 10,000 workers. The company has now moved away from the "metaverse", or virtual platforms, and is more focused on artificial intelligence products and related tools.
With Zuckerberg leading the company's efforts to catch up in the AI race, Meta's board said it sees a future of "enormous market opportunity" for the firm. Big tech companies are expected to spend an estimated $1 trillion just this year on AI development and the expensive infrastructure around it, such as data centres. Meta said on Wednesday that it plans to spend up to $145 billion this year on AI projects, and has increased the amount it expects to spend on AI every financial quarter so far this year. It is spending so much on technology that it recorded negative cash flow for the first time since going public 14 years ago. Cash flow represents the money a company retains after paying for operations and investments, meaning Meta is now spending more money than it is bringing in, and intends to spend even more in the coming year. Susan Li, Meta's chief financial officer, said on Wednesday that another benefit of the stock split would be to give the company more ways to finance future spending on AI work. The company's level of AI spending, without a clear new source of revenue arising from it, appears to have unsettled investors on Thursday – Meta shares fell more than 7 per cent, wiping more than $100 billion off the company's market capitalisation, a key metric used worldwide to measure the value of a publicly traded company.
