On May 24, 2021, the Board of Directors (the “Board”) of Farfetch Limited (the “Company”) unanimously approved the recommendation of the Compensation Committee of the Board (the “Compensation Committee”) to grant a long-term performance-based restricted share unit award (“PSUs”) under the Company’s 2018 Farfetch Employee Equity Plan (the “2018 Plan”) to José Neves, the Company’s Founder, Chief Executive Officer and Chairman of the Board (the “CEO”). The grant is for 8,440,000 PSUs, which will only vest, if at all, based on the Company’s achievement of pre-determined increases in the Company’s stock price over an eight-year period, as further described below.
The Board believes the PSUs are an appropriate award because of the importance of retaining and incentivizing the CEO to lead the Company to sustained, long-term superior financial and operational performance. Under the CEO’s leadership since its founding in 2007, the Company has become the largest global online destination for luxury fashion and generated $3.2 billion of Gross Merchandise Value in the year ended December 31, 2020. The Board believes the PSUs further align the CEO’s interests with those of the Company’s long-term stockholders as the value the CEO will realize from the PSUs, if any, will depend on the creation of enhanced stockholder value over the following eight years. In designing the PSUs, the Compensation Committee was advised by an independent compensation consultant.
In connection with the grant, the CEO has entered into a letter agreement concurrent with the award of the PSUs (the “Waiver Letter”) pursuant to which he agreed that he would not receive an annual base salary or be eligible to receive an annual bonus with respect to 2021 or for any period through December 31, 2028. In addition, the CEO agreed that he will not be eligible to receive another equity-based or long-term incentive compensation award prior to December 31, 2028 unless otherwise determined by the Compensation Committee. The award has an approximate grant date value of $77 million and implied average yearly earnings potential of approximately $11 million, subject to finalization upon grant. The Board believes that the receipt of compensation solely in the form of the PSUs ensures that the CEO’s compensation over the next eight years is directly tied to the Company’s achievement of superior performance.
The PSUs are divided into eight tranches that are eligible to vest based on the achievement of stock price hurdles during each performance period, measured based on the average of our closing share price over a 90 trading day trailing average (the “Average Closing Price”). Each tranche will be earned and vest if the Average Closing Price exceeds the stock price hurdle on a date within the applicable performance period as follows, subject to the CEO’s continued employment with the Company:
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| | | Tranche | | Performance Period | | Number of PSUs Eligible To Be Earned | | Stock Price
Hurdle | | |
| | | | | |
| | | 1 | | 1st – 5th anniversary of the grant date | | 5% of Total Number of PSUs | | $75.00 | | |
| | | | | |
| | 2 | | 1st – 5th anniversary of the grant date | | 5% of Total Number of PSUs | | $100.00 | | |
| | | | | |
| | 3 | | 2nd – 6th anniversary of the grant date | | 10% of Total Number of PSUs | | $125.00 | | |
| | | | | |
| | 4 | | 2nd – 6th anniversary of the grant date | | 10% of Total Number of PSUs | | $150.00 | | |
| | | | | |
| | 5 | | 3rd – 7th anniversary of the grant date | | 10% of Total Number of PSUs | | $175.00 | | |
| | | | | |
| | 6 | | 3rd – 7th anniversary of the grant date | | 20% of Total Number of PSUs | | $200.00 | | |
| | | | | |
| | 7 | | 4th – 8th anniversary of the grant date | | 20% of Total Number of PSUs | | $225.00 | | |
| | | | | |
| | 8 | | 4th – 8th anniversary of the grant date | | 20% of Total Number of PSUs | | $250.00 | | |
