Stock-based compensation is a way companies use to reward their employees by offering them shares of the company's stock or any other sort of equity interest. It’s a form of non-cash payment and is often used to attract, retain, and motivate employees.
While the basic definition provides a glimpse into stock-based compensation, it's more complex when you dive deep. It's a type of employee compensation that gives employees an opportunity to acquire shares of the company’s stock. These can include stock options, restricted and unrestricted stock, or other forms of equity incentives.
The cost of stock-based compensation is calculated based on the fair value of the equity instruments issued. It's recognized as an expense in the company's income statement and added back to net income in the cash flow statement, as it's a non-cash expense.
Stock-based compensation is a common practice, especially in start-ups and growing businesses. It serves as a strategic move to align the interests of the employees with the shareholders, thereby driving company performance. However, it can dilute existing shareholders' equity and be a drain on company resources if not managed properly.
Google, like many tech companies, offers stock-based compensation to its employees. This includes stock options, restricted stock units (RSUs), and other forms of equity-based compensation. The cost of these compensation packages is calculated based on the fair value of the stock or equity interests granted.
Amazon also offers stock-based compensation to its employees, primarily in the form of RSUs. The cost of these RSUs is spread out over the "vesting" period, which is the time an employee must work for the company before they can claim the shares. This is a way for Amazon to incentivize long-term employment and performance.
Goldman Sachs offers stock-based compensation as a part of its total compensation package for employees. Given the nature of the company's operations, providing employees with a stake in the company helps align their interests with those of the shareholders, driving them to work towards increasing shareholder value.