Stock Based Compensation
Categories: Stocks, Company Management
See: Restricted Stock Unit - RSU.
When you pay your executives in stock, rather than cash.
Why would you do this? Because you want to make them feel and act more like owners than just rented employee talent. The presumption runs that owners will run the business better than mere employees, and it's a big part of the reason so many experts point to Silicon Valley as having been so broadly successful as a culture, as much as a financial thing. That is, investors are long-term greedy, rather than short-term greedy. They "happily" share in the spoils by granting stock based compensation, in many cases, to all employees in a company.
Stock. Stock Options. Profit participation. All of them. Employees share in the spoils of the Tech Wars, and proudly go to Valhalla when their time is done.
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Finance: What is stock based compensatio...7 Views
Finance a la shmoop What is stock based compensation While
investors want management with skin in the game when your
ceo has ninety eight percent of her net worth tied
up in the stock of the company that she's running
well presumably she runs it better or at least in
theory anyway So over time management has been paid in
equity ownership grants as well as in cash that is
company management gets paid in stock options and in stock
or rather shares of the company simply granted to them
in lieu of cash Why do companies not just pay
cash while they want management toe Have that whole ownership
thing going for them to act like owners You know
not just like union employees They want management with direct
stakes in how well or pa poorly the business per
forms in the long run and think about the dynamics
of a ceo getting paid even a relatively huge million
dollars a year in salary and nothing else that's it
well that ceo takes a company from four hundred million
dollars in sales and thirty million in profits to five
years later two billion dollars in sales and for three
Hundred million in profits that is the ceo made the
company at least ten times more valuable certainly ten times
more profitable and in five years that's really good But
that ceo just got their single million dollars a year
each year along the way Well that ceo would not
have financially participated personally in making shareholders so much wealthier
and that's not fair right If management of the company
makes huge returns for investors doesn't it seem right that
management should have huge returns for themselves and not just
a basic salary and male Maybe a little bit of
a bonus there too well some companies loan money at
low interest rates to ceos and other top execs so
that their ableto buy shares in the company leveraged well
Other companies just grant shares to management and still others
just grant stock options is kind of a spiff above
their cash compensation So yeah it's all about having skin
in the game which if you play football without sufficient 00:02:11.45 --> [endTime] padding is a definite possibility