The Shake-Up in Executive Pay Among Bitcoin Miners: A Shift in Shareholder Sentiment

As Bitcoin continues to carve its path in the financial landscape, the spotlight is turning on the executive compensation packages at leading U.S. Bitcoin mining firms. In a marked shift, shareholders are reigning in their support for hefty executive pay, with backing for these packages plummeting to an average of 64% during this year’s proxy season. This figure starkly contrasts with the 90% approval norm commonly witnessed across the S&P 500, as underscored by a July 10 research note from VanEck.

Rising Executive Compensation

VanEck’s analysis, which scrutinized filings from eight prominent Bitcoin miners, revealed a staggering increase in named-executive-officer (NEO) compensation. The average jumped from $6.6 million in 2023 to a striking $14.4 million in the draft 2024 proxies. This rise raises eyebrows, especially given the volatility and challenges associated with cryptocurrency mining.

Equity compensation has surged, making up 79% of total pay in 2023 and climbing to 89% in 2024. This is significantly higher than the Russell 3000’s and the energy sector’s equity weighting, both hovering around 63%. Interestingly, while base salaries have remained stable at approximately $474,000, the increase in equity grants paints a different picture.

Take, for example, Riot Platforms’ CEO, who secured a jaw-dropping $79.3 million in stock awards for 2024—almost double the $40.1 million granted to Marathon’s CEO. Furthermore, Core Scientific, which is emerging from bankruptcy, issued a hefty $39.5 million in stock to its CEO, further complicating the industry’s compensation landscape.

Say-on-Pay Votes Reflect Growing Resistance

The growing resistance among shareholders is starkly evident in recent advisory votes on compensation. Companies like Core Scientific, Riot, and Marathon failed to meet investor expectations, with approval rates plummeting to just 38%, 32%, and 22%, respectively. This trend paints a concerning picture: six out of the eight companies did not achieve the 70% support threshold that proxy adviser ISS flags as indicative of low backing. In comparison, the Russell 3000 experiences a failure rate of around 4%.

Beyond mere numbers, investors are increasingly scrutinizing the implications of dilution in equity plans, particularly given that expansive equity strategies can result in significant insider dilution when awards vest. Firms like Terawulf and Core Scientific were granted expansions equivalent to approximately 10% of their outstanding shares—numbers that raised alarm bells among analysts.

Gradual Shift Toward Performance Gating

Interestingly, the conversation around performance metrics is also evolving. Of the eight miners studied, six have now adopted performance stock units (PSUs) that vest based on multi-year share price or total shareholder return targets, a notable increase from the two companies that implemented them in 2022. This shift highlights a growing recognition that executive pay should not only reward presence but performance.

However, not every company is on board with this trend. For instance, while CleanSpark has yet to adopt PSUs, Bit Digital has authorization for them but has not issued any. This inconsistency further complicates an already nuanced discussion about executive pay.

Despite these advances, VanEck’s report notes that many incentive plans still rely on two to three-year vesting periods tied to “as-achieved” equity. This reliance creates alignment gaps with long-term value creation for investors, leaving much to be desired.

Divergent Pay-Performance Ratios

Examining the relationship between executive pay and market capitalization gains further illustrates the disparities in this industry. For instance, Riot’s aggregate NEO compensation of $230 million was an astonishing 73% of its market-cap increase. In stark contrast, Marathon’s ratio stood at 18%, while Core Scientific’s lingered at a mere 2%. These figures highlight a concerning disconnect between how much executives are compensated and the value they are generating for shareholders.

In light of these disparities, VanEck recommends strategies for boards to address shareholder pushback on executive compensation. These strategies include linking bonuses to cost-per-coin-mined metrics to enforce operating discipline, tying long-term equity incentives to return-on-capital metrics instead of just share-price targets, and extending vesting schedules to mitigate dilution risks.

The waves of change regarding executive compensation in the Bitcoin mining sector signal a broader evolution in corporate governance. As investors become increasingly vocal, the landscape is likely to continue shifting in favor of more accountability and alignment between executive pay and company performance.