Stock Based Compensation

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.

Related or Semi-related Video

Finance: What is stock based compensatio...7 Views

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Finance a la shmoop What is stock based compensation While

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investors want management with skin in the game when your

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ceo has ninety eight percent of her net worth tied

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up in the stock of the company that she's running

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well presumably she runs it better or at least in

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theory anyway So over time management has been paid in

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equity ownership grants as well as in cash that is

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company management gets paid in stock options and in stock

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or rather shares of the company simply granted to them

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in lieu of cash Why do companies not just pay

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cash while they want management toe Have that whole ownership

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thing going for them to act like owners You know

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not just like union employees They want management with direct

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stakes in how well or pa poorly the business per

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forms in the long run and think about the dynamics

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of a ceo getting paid even a relatively huge million

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dollars a year in salary and nothing else that's it

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well that ceo takes a company from four hundred million

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dollars in sales and thirty million in profits to five

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years later two billion dollars in sales and for three

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Hundred million in profits that is the ceo made the

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company at least ten times more valuable certainly ten times

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more profitable and in five years that's really good But

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that ceo just got their single million dollars a year

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each year along the way Well that ceo would not

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have financially participated personally in making shareholders so much wealthier

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and that's not fair right If management of the company

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makes huge returns for investors doesn't it seem right that

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management should have huge returns for themselves and not just

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a basic salary and male Maybe a little bit of

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a bonus there too well some companies loan money at

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low interest rates to ceos and other top execs so

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that their ableto buy shares in the company leveraged well

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Other companies just grant shares to management and still others

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just grant stock options is kind of a spiff above

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their cash compensation So yeah it's all about having skin

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in the game which if you play football without sufficient 00:02:11.45 --> [endTime] padding is a definite possibility

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