Year: 2023

Investor’s Guide to Stock Based-Compensation

Stock-based compensation (“SBC”) is compensation that is based on the value of a company’s equity. It can take the form of securities bearing an equity interest in the company or obligations to pay cash in an amount based on the value of the company’s equity. The latter forms are treated as liabilities since they are settled in cash, while the former are treated as equity. Since equity-classified SBC affects share count, investors can be diluted by the practice and should understand its impact. This paper is intended to serve as a guide to understanding SBC from an investor’s perspective and will focus on equity-classified SBC.

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