Prompted by this NYTimes article about the expected value of Sheryl Sandberg’s compensation package at Facebook:

1. Sandberg joined the company in March 2008; in December 2008, Facebook was being financed at a $15bn valuation.

2. Let’s take $15bn as Facebook’s valuation when Sandberg’s comp package was issued. (The number might be too high; maybe there was a premium placed on preferred shares, and the company certainly grew in 2008, but it’s in the ballpark.) From March 2008-January 2011, Facebook increased it value 6.67 times. ( = $100bn/$15bn.)

3. The Times calculated Sandberg’s comp package at $1.6bn if Facebook were valued at $100bn. What’s worth $1.6bn at a $100bn valuation was worth $240mm at a $15bn valuation. (Assuming no stock grants, options resets, etc.)

Punchline: Facebook’s board granted Sandberg a $240mm comp package because they thought she could build a business that would generate billions in profit and would increase the company’s value by way, way more than she was getting paid. She did it, and that’s why she’s the number-two at one of the most valuable companies in the world.