Peloton offered Barry McCarthy $168mn to be chief executive

Peloton offered Barry McCarthy a package worth $168mn to come out of retirement and become chief executive, a sum the struggling connected fitness company calculated as 2,299 times larger than the median employee salary.

Peloton revealed the figures in a proxy filing on Tuesday that also said that co-founder and former chief executive John Foley cashed out $97mn worth of shares in the 12 months to June 2022, while five other top directors sold a total of $88mn of stock.

On paper, McCarthy’s package would make him one of the highest-paid chief executives in the US, though the filing said “nearly all of this amount reflects Mr McCarthy’s new hire equity grant” — options to purchase shares at a later date. All of his 8mn options are currently underwater as Peloton’s equity value has declined by four-fifths since he was appointed.

The disclosure of previous stock sales from top directors had been a catalyst for Blackwells Capital to launch an activist campaign early this year, which led to Foley stepping down. Blackwells alleged the company had been “grossly mismanaged” and said insiders had enriched themselves by selling more than $700mn of stock since the company’s initial public offering in late 2019.

Peloton also disclosed that it would now prohibit executives from pledging shares as collateral, after Foley faced margin calls — demands to put up more collateral — from Goldman Sachs as the stock plunged in value last year. It previously allowed executives to pledge up to 40 per cent of their stock as collateral.

Foley, the filing said, had pledged more than 6.7mn of his shares, almost double the 3.5mn disclosed a year ago, “as collateral to secure certain personal indebtedness”.

Foley resigned as chief executive in February and relinquished his role as chair last month, but the filing indicated he still holds 40.6 per cent of supervoting shares and 33.8 per cent of “total voting power”.

The disclosures come weeks after the group laid off 500 employees in its fourth restructuring of this year, as McCarthy attempts to revive momentum with a leaner business model.

Peloton’s chief executive-to-median worker pay ratio of 2,299-to-one compares with an average of 324-to-one among S&P 500 bosses, according to the 2021 Paywatch Report from the AFL-CIO, a federation of unions. The company said the median employee salary was $73,117; it has about 5,000 staff.

Peloton said it believed in “at-risk” and variable pay for its executives so their interests were aligned with the long-term value of the business. It said it strived to “ensure that the pay of every employee appropriately reflects the level of their job impact and responsibilities and is competitive within our compensation peer group”.

Peloton also said McCarthy would be given no additional equity awards for four years.

McCarthy, former finance chief of both Netflix and Spotify, took over after Peloton’s market value had collapsed from nearly $50bn to less than $8bn, as losses mounted and it became clear the hypergrowth it experienced early in the Covid-19 pandemic was temporary — not a “new normal” that would take Peloton’s value to $1tn, as Foley had projected.

A quick turnround for Peloton has proved difficult. The group has continued to post losses and Wall Street has largely lost faith in the company, whose market value has sunk to $2.5bn, despite McCarthy cutting costs and forming sales partnerships with Amazon and Dick’s Sporting Goods.

The filing also revealed that Peloton awarded other top executives large equity awards to “motivate and retain our employees”, although some of the executives were ousted or left this year. Jill Woodworth, former chief financial officer, was awarded total pay of $13.4mn in fiscal 2022, while new chief financial officer Liz Coddington was awarded nearly $8mn.

Peloton called some of the pay awards “Together we go far” equity grants. This is a commonly used phrase at the company, sometimes embossed on mugs, and described as “one of the core values that guides our strategy”.