Funko's CEO Equity Incentive Strategy: A Strategic Move or a Costly Gamble?

Funko, Inc. (FNKO) has unveiled a high-stakes equity compensation package for its newly appointed CEO, Josh Simon, designed to align his interests with long-term shareholder value. Simon’s incentives include 1,000,000 time-based restricted stock units (RSUs) vesting over four years and 750,000 performance-based RSUs split into three tiers: one-third tied to a $8.00 stock price threshold, one-third to $20.00, and the remainder vesting over three years [1]. This structure reflects a growing trend in executive compensation, where performance metrics are increasingly used to tie pay to company outcomes. But does it represent a calculated strategy to drive sustainable growth—or a gamble that could backfire if targets remain unmet?

The Rationale for Performance-Based Incentives

Academic research underscores the potential benefits of performance-based equity. A 2023 study in the Journal of Financial Economics found that 78% of investors believe CEOs make better decisions when incentives are long-term, with fewer than 6% citing concerns about drawbacks [2]. Similarly, a 2025 Pay Governance report revealed that 71% of institutional investors prefer performance share units (PSUs) or a mix of PSUs and time-based RSUs, with 86% advocating for PSUs to constitute at least 50% of long-term incentives [3]. These metrics suggest strong investor support for tying executive rewards to measurable outcomes.

Funko’s approach mirrors this preference. By linking a third of Simon’s RSUs to stock price targets, the company aims to incentivize strategies that boost shareholder returns. For instance, the $20.00 threshold—over 500% higher than the stock’s August 2025 closing price of $3.35—requires sustained growth, potentially encouraging Simon to prioritize long-term value creation over short-term gains [4].

Feasibility of Performance Targets

However, the realism of these targets is questionable. Historical data shows Funko’s stock fluctuated wildly in August 2025, with a low of $2.46 and a high of $3.37 [5]. Analysts project a 12-month average price target of $5.33, with the highest forecast at $8.00 [6]. Achieving $20.00 would demand extraordinary performance, especially given the company’s recent $41 million Q2 loss [6]. While ambitious goals can drive innovation, overly aggressive targets risk demotivating executives or encouraging risky behavior if success seems unattainable.

Investor Preferences vs. Market Realities

Despite these challenges, investor sentiment remains cautiously optimistic. A 2025 Pay Governance survey found that 86% of institutional investors believe PSUs should form the bulk of long-term incentives, citing their alignment with shareholder returns [3]. Funko’s stock price rose 2.2% following Simon’s appointment, signaling market confidence in his leadership [7]. Yet, critics argue that PSUs can reward executives for external factors like market conditions, not just internal performance [8]. For example, a 2025 Farient Advisors study noted that S&P 1500 firms using PSUs had lower relative total shareholder returns (TSR) compared to those using time-based equity [9].

Balancing Ambition and Accountability

Funko’s strategy hinges on a delicate balance. The time-based RSUs ensure Simon remains committed to the company’s long-term vision, while the performance-based components create upside potential tied to stock price growth. However, the $8.00 and $20.00 thresholds must be achievable yet challenging enough to avoid complacency. Given the stock’s current trajectory, the $8.00 target appears more feasible, but the $20.00 hurdle may require transformative growth, such as a major product launch or strategic acquisition.

Conclusion

Funko’s CEO equity incentive strategy reflects a nuanced attempt to align executive and shareholder interests. While performance-based compensation is broadly supported by investors and research, the success of this plan will depend on Simon’s ability to navigate Funko’s financial challenges and execute a growth strategy that justifies the ambitious stock price targets. If the company can stabilize its operations and capitalize on its brand’s cultural relevance, the incentives could prove a masterstroke. But if the targets remain out of reach, the plan risks appearing as a costly gamble—one that prioritizes aspirational goals over pragmatic execution.

Source:
[1] Funko, Inc. Reports Material Event, [https://www.stocktitan.net/sec-filings/FNKO/8-k-funko-inc-reports-material-event-c5955779a253.html]
[2] CEO compensation: Evidence from the field,
https://www.sciencedirect.com/science/article/pii/S0304405X23001587
[3] Are Institutional Investor Preferences for Performance-Based Equity Incentives Really Diminishing in Favor of Time-Based Shares?,
https://www.paygovernance.com/viewpoints/are-institutional-investor-preferences-for-performance-based-equity-really-diminishing-in-favor-of-time-based-shares
[4] Funko (Nasdaq:FNKO) - Stock Analysis, [https://simplywall.st/stocks/us/consumer-durables/nasdaq-fnko/funko]
[5] Funko (FNKO) Historical Stock Price Data, [https://stockanalysis.com/stocks/fnko/history/]
[6] Funko (FNKO) Stock Forecast & Price Target, [https://www.tipranks.com/stocks/fnko/forecast]
[7] Funko stock rises after appointment of Netflix executive as CEO, [https://www.investing.com/news/stock-market-news/funko-stock-rises-after-appointment-of-netflix-executive-as-ceo-93CH-4186881]
[8] Study of PSUs Sees Higher Pay, Lower Performance, [https://farient.com/2025/05/15/psus-study-sees-higher-pay-lower-performance/]
[9] Are Executive Incentive Plan Payouts for AIP and PSUs Aligned with Shareholder Returns?, [https://corpgov.law.harvard.edu/2025/05/02/are-executive-incentive-plan-payouts-for-aip-and-psus-aligned-with-shareholder-returns/]