PayPal Executive Compensation

Designed for Performance or Payout?

After reviewing PayPal’s latest proxy statement, we believe the executive compensation package has room for improvement. Here's a summary of our findings and concerns:

1. Structure Overview

The package includes a base salary, an Annual Incentive Plan (AIP) paid in cash, and long-term incentives split evenly between Restricted Stock Units (RSUs) and Performance-Based RSUs (PBRSUs).

Source: PayPal Annual Proxy 2024

2. Annual Incentive Plan Concerns:

• Change in Metrics
  PayPal replaced revenue with transaction margin dollars as a performance metric, alongside non-GAAP operating income (still at 50/50 weighting). While this shift emphasizes profitable growth, isn’t that already captured by the non-GAAP operating profit metric?

  In any case, the focus on transaction margin dollars is not bad, given the shift to Braintree’s “price-to-value” strategy. Yet, this strategy resulted in a sharp deceleration in Braintree’s payment volume growth (just 2% in Q4’24, compared to 11% in Q3 and 19% in Q2), which unsettled investors.

  

  Source: Koyfin (affiliate link with a 20% discount for StockOpine readers, premium members can benefit from a 3-month free trial)

• Executive Compensation Math:

  • CEO Alex Chriss earns a $1.25M salary and has a 200% AIP target, meaning $2.5M for meeting targets and up to $5M if maximum thresholds are met.

  • Other Named Executive Officers (NEOs) have a $750K salary and a 125% AIP target.

Here’s the issue: the transaction margin dollar targets were extremely SOFT.

• 50% threshold ($1.25M payout for Alex): Flat ($13.6B vs $13.7B in 2023)

• 100% threshold ($2.5M payout): Just 2% growth ($13.95B)

• 200% threshold ($5M payout): Only 5% growth ($14.4B)

Source: PayPal Annual Proxy 2024

PayPal ended up growing transaction margins by 7% to $14.66B (and 5% excluding interest on customer balances), clearing the bar for maximum payout easily. We believe these low thresholds were designed to ensure bonuses, not to incentivize real outperformance. At a minimum, 100% Payout should require market growth (7–10%), and 200% should demand exceptional execution.

For context, Intuit’s annual incentive plan (based on revenue and non-GAAP operating income targets), which uses similar AIP target structures (200% for the CEO and 120% for other executives), required 13% revenue growth for target-level payout and 22% growth for maximum payout. While Intuit’s growth profile differs from PayPal’s, it still offers perspective on how performance expectations can reflect aspiration and ambition in executive compensation design.

Source: Intuit’s Proxy statement

But even looking at Visa’s short-term incentive targets suggests that PayPal may have set the bar too low.

Source: Visa’s Proxy statement

• PayPal’s non-GAAP operating income targets were more reasonable, especially when compared to Visa’s 8.6% net income growth goal (see table above), though still less ambitious than Intuit’s, which is understandable given their differing business models. We’ve included Intuit’s targets for context:

  • 50% payout: 2% decline (Intuit’s min threshold at 3% growth)

  • 100% payout: 5.4% increase (Intuit’s 100% threshold at 14.5% growth)

  • 200% payout: 14% increase (Intuit’s max threshold at 26% growth)

The company achieved 197% of this target ($5.84B). Still, setting a bonus trigger at a decline in profits (see the first point) seems contradictory to “performance-based” compensation.

3. Long-Term Incentive Plan (PBRSUs)

• New Structure:
  The new plan (2024–2026) is based on Total Shareholder Return (TSR) relative to the S&P 500, over a 3 year period with split measurement across three discrete annual periods:

  • 50% payout: 25th percentile

  • 100% payout: 55th percentile

  • 200% payout: 75th percentile

Source: PayPal Annual Proxy 2024

This design rewards “average” performance, as it benchmarks against the index rather than a defined peer group. For comparison, Intuit, used here again as a reference, awards 40% at the 25th percentile, 100% at the 60th, and 200% at the 100th percentile, but crucially, this is measured against a selected peer set, which is more meaningful.

In our view, using a relevant peer group provides better alignment, and the full payout threshold for PayPal should be set at a higher bar, ideally the 90th percentile, not the 75th. If the goal is to reward excellence, the targets must reflect that ambition.

Source: Intuit’s Proxy statement

This brings us to another concern. Some might point to Visa’s PSU structure as a defense, since it also uses TSR relative to the S&P 500, awarding 75% at the 25th percentile, 100% at the 50th, and only 125% at the 75th (versus PayPal’s 200%). However, Visa uses TSR as a modifier on three-year EPS targets that are adjusted for buybacks set at the beginning of the performance period. If buybacks exceed or fall short of the initial plan, the EPS target is adjusted accordingly, adding rigor to the framework. This combination can lead to a 200% payout, but only if both EPS performance and TSR align.

What we disliked about PayPal’s new approach is the complete shift away from fundamentals. The prior plan (2022–2024) was based on revenue and free cash flow CAGR, metrics we believe are more closely tied to long-term value creation. TSR isn’t a flawed metric, but when measured over short, discrete periods like one to three years, it can diverge significantly from underlying performance. In a hype-driven market, TSR may soar even when fundamentals deteriorate. While most S&P 500 companies use a three-year horizon, we wouldn’t call that “long-term” and this structure fails to adequately account for potential disconnects between price and fundamental performance.

At the very least, PayPal should have retained a financial performance metric, like free cash flow, in the plan, or carefully selected a relevant peer group to assess TSR performance more meaningfully.

4. Conclusion

As this came to our attention, we felt it was important to break it down and hear your thoughts as well. To be clear, we’re not saying the compensation plan is entirely flawed, but we do believe there’s considerable room for improvement.

We’ll be sharing these concerns directly with PayPal’s Investor Relations team and posting them publicly on X, tagging Alex Chriss to see if any clarity or adjustments are offered.

As shareholders, we still believe in Alex Chriss’ leadership potential, but this compensation structure doesn’t sit right with us.

What do you all think?

---

• PayPal’s Proxy

• Intuit’s Proxy

• Visa’s Proxy

---

Disclaimer: The team does not guarantee the accuracy or completeness of the information provided in the newsletter. All statements express personal opinions based on own financial and business analysis. Any estimates or forward looking statements made are inherently unreliable. No statement of opinion is an offer or solicitation to buy or sell the financial instruments mentioned.

The content of our newsletter is not a trading or investment advice and we do not provide any personal investment advice tailored to the needs of any recipient. The information provided should not be considered as a specific advice on the merits of any investment decision. Securities trading involve risk and you might lose your capital and/or incur other damages. Investors should make their own research and consult their registered investment advisor or financial advisor before taking any investment decision.

Neither the team nor any of its affiliates accept any liability whatsoever for any direct or indirect loss however arising, from any use of the information contained herein. Any unauthorized copy of this newsletter or its contents is illegal.

Our posts may contain affiliate links, which means that we might get a commission if you decide to sign-up using any of these links. No extra cost is charged to you.

By subscribing / reading our newsletter or any affiliated social media accounts, you indicate your unconditional acceptance to the above and your unconditional acceptance to our terms and conditions.