Many tech companies nowadays use stock-based compensation to reward managers and employees. Some even pay as much as 80% of executive pay in stocks or options. I’m personally a fan of stock-based compensation for a few reasons.

A fan

For one, stock-based compensation is not a cash expense. Cash is the lifeblood of a company and is vital for a fast-growing business. Second, stock-based compensation aligns management’s interests with shareholders. Executives and employees become shareholders themselves who are incentivised to see the stock perform well. In addition, companies may pay executives through stock options or restricted stock units that vest over a few years. With a multi-year vesting period, executives are incentivised to see the stock do well over a multi-year period, which aligns their interests with long-term shareholders. All these being said, stock-based compensation does create a headache for analysts: It leads to a mismatch between the company’s profit/loss and its cash flow....