COMP NEWS – Stock-based compensation has been a popular carrot for driving talent retention and acquisition in the tech industry. Only one problem – investors don’t want growth or employee satisfaction. They want profits. And stock-based compensation has been getting in the way of that.

Investors are getting antsy as rising stock-based compensation expenses against falling stock prices threaten their returns.

The competitive landscape for talent over the past two years led tech companies to dole out equity in place of cash to make compensation packages as enticing as possible. As long as the stock price went up, investors had very little to say because it was part of the company’s growth strategy, said Aalap Shah, managing director at advisory firm Pearl Meyer.

But as stock values tumble in the second half of 2022, investors are looking at the increase in stock-based compensation (SBC) as an issue.

The more shares a company issues, the less value an investor’s stake is. And tech companies have been issuing a lot of shares to not only attract new employees but hang on to their existing ones.

But investors are not interested in keeping talent happy, nor ensuring the growth of the workers that run the corporate machine. They’re looking for profitability, and stock-based compensation tips the scales against them.

In a period where investors are focused on profitability over growth, such retention and hiring efforts begin to look costly. Shareholders are still paying for the existing stock grants and now they’re going to pay for new grants, too, said Shah.

“The drop in the stock price makes the expense, for lack of a better way to phrase it, a lot more expensive,” he added.

To read more about the tech industry and its stock compensation problem, click here.

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