Katie Benner reported in today’s New York Times that, “For the last few years, LinkedIn, the professional social networking company, has doled out increasingly large amounts of stock to pay its workers.
“In 2014, LinkedIn paid employees $319 million in stock, or 14 percent of revenue; in 2015, that rose to $510 million, or 17 percent of revenue. At the time, those figures were largely met with shrugs from Wall Street.
“Now that attitude may be changing.”
Today’s article explained that, “As LinkedIn prepares to report its latest quarterly earnings next week, Wall Street is increasingly scrutinizing the number of stock grants that the company pays employees — especially after LinkedIn projected lower growth for this year and its stock price has fallen…[T]he issue is not limited to LinkedIn. With tech earnings season kicking off on Monday, investors are paying more attention to stock-based compensation at many tech companies.
“Paying employees with stock is largely unquestioned when times are good, since the move theoretically aligns the interests of the workers with company performance. The practice is technically a corporate expense, but during boom periods, Wall Street typically focuses on a company’s operating results that exclude that expense.
“Yet public tech companies have had a rockier time in the stock market this year. That has led investors to begin looking more closely at the quality of the companies’ financial results. The scrutiny means examining earnings with stock-based compensation expenses included — and certain financial measures, like earnings and margins, invariably look worse when that expense is factored in.”
Ms. Benner added that, “Tech companies stand out as some of the most generous givers of shares to employees…[A]s a result, there has been a ‘heightened investor focus on the level of stock-based compensation among the Internet companies,’ Mark Mahaney, an analyst at RBC Capital Markets, wrote in a recent note.”
