The Ill-Gotten Gains Gazette 25Q1
Highlighting the most suspicious executive compensation decisions in 2025 Q1
Here’s a list of interesting compensation activity during the first quarter of FY25. To be clear, some of these governance outcomes could only be described as ‘ill-gotten’ because the compensation filings were released after or concurrently with the relevant news release, such that there was no way to make money off of it.
If I (and thus you, dear reader), could have made money on it, the gains wouldn’t be ill-gotten. They’d be positively glowing with health.
Semtech Corporation SMTC 0.00%↑
On February 7th, 2025, SMTC revised guidance down, sending share prices plummeting.
Grants are typically issued in early March and were done so on March 6th, 2025.
Earnings on March 13th, 2025 were better than feared, sending the stock up after hours and into the next day.
When is it the right time to take guidance down?
Before the annual grant hits.
Of course, there’s plausible deniability here. Shares were moving down prior to the formal release as those closer to the industry were able to identify SMTC’s NVDA relationship changing beforehand, so management may have felt like their hand was forced.
But if you had to choose a time to do it…
Skyworks Solutions Inc. SWKS 0.00%↑
Skyworks CEO Liam K. Griffin announced his departure concurrently with the 2025Q1 earnings release on February 5th, 2025. This was a very unfortunate quarter for SWKS because they announced a significant contract loss with the largest customer (AAPL), sending shares down ~30%.
Incoming CEO Philip G. Brace (ex-Inseego) was appointed as CEO on February 4th and scheduled to formally begin his tenure on February 17, 2025, but the timing of PSUs in his compensation package is neither of those dates:
The stock price hurdles will be measured against a base price that will equal the average closing price for the seven trading days following February 5, 2025.
This makes sense! The stock price hurdles in the grant are based on the base price, so if you’re the CEO, you would want that to be as low as possible to maximize your potential dollar outcome.
You would also want the old management team to get all the bad news out of the way during the quarter they go out so you aren’t haunted by the baggage.
The specific choice of seven trading days following earnings is one they made with the contract loss information in hand.
It’s quite gracious when departing management kitchen-sinks to clear way for the new team. This is in that vein.
Cloudflare Inc NET 0.00%↑
On February 5th, 2025, co-founders, Michelle Zatlyn and Matthew Prince were both granted a long-term PSU with price-hurdles the day before earnings:
4. The PSUs are comprised of six separate tranches that become eligible to vest upon achievement of certain stock price targets ranging from $156.00 to $579.00 (the "Stock Price Goals") at any time within seven years of February 5, 2025, with the performance period shortened to end upon a change in control of the Issuer. Upon satisfaction of a Stock Price Goal, 1/6 of the shares subject to the applicable tranche vest and become exercisable on each Issuer quarterly vesting date (2/15, 5/15, 8/15 or 11/15) occurring on or after the date of certification of achievement of the applicable Stock Price Goal for such tranche.
The 24Q4 earnings results were released after market close on February 6, 2025 and the share price increased $20 from the $140s to the $160s, easily clearing the first $156 hurdle.
Good business, if you can get it.
Target Hospitality TH 0.00%↑
February 24th, 2025: The U.S. government terminated TH’s Pecos Children’s Center (PCC) contract, triggering a ~50% stock price decline.
February 28th, 2025: New management grants were issued, featuring relative TSR hurdles against the Russell 2000 (FY 25 - FY27).
March 5th, 2025 : CoreCivic (CXW) announced a new lease with TH at the Dilley facility.
2023 and 2024 grants were issued in early March. 2025 grant was issued in late February. In general, earlier issuance suggests anticipation of near-term positive catalysts (i.e. a spring-load).
Furthermore, the 2023 and 2024 grants had performance periods starting in January of that year. In contrast, the 2025 grant performance period starts AFTER the contract termination:
Performance Period: The performance period for the Award shall be the period between February 27, 2025 and December 31, 2027.
This is indicative of a bullet-dodge—a tactic that allows management compensation outcomes to avoid the downside of a negative event.
Thus, they managed a simultaneous bullet-dodge AND spring-load. Impressive.
In fact, Target Hospitality has a history of suspiciously well-timed signals and is currently an active idea for Tarot Capital.
Case Study & Idea: Archer Hits Target
Note: This was originally meant to be a case study, but a recent signal turned it into an active idea.
Fortunately, there are many cases where there exists enough time to capitalize on suspicious compensation activity before the event occurs.
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