Morgan Stanley reports
As the US equity market has risen in value, so too has stock-based compensation (SBC), which has now reached a volume of $330 Bn (up 9% year-on-year). Although the technology sector remains the largest issuer of SBC, virtually all sectors have increased their use of it over the past year.
SBC has grown from 8% in the manufacturing sector to 28% in the utilities sector, although information and communications technology remains the focus, with the highest concentration of such remuneration. Last year’s 25% growth represented expenditure of over $170Bn, accounting for around 3.9% of the respective sectors’ revenues.
Undoubtedly, the overall picture is consistent with real-world examples of substantial SBC packages in the technology sector, and it is possible that some news reports underestimate their impact.
This year’s wave of IPOs in the field of artificial intelligence will further magnify the scale of SBCs.
In terms of reported EPS, SBCs are dilutive to the extent that the grants are ‘in-the-money’ and the profits are positive. However, for companies with ‘out-of-the-money’ SBCs, these payments may not be reflected in the diluted number of shares if they are considered anti-dilutive, thereby artificially inflating EPS.
