Turning Equity into Strategy
In today’s talent arms race, stock-based compensation expense (SBCE) is no longer just a line item—it’s essential for securing necessary talent. A new Semler Brossy article outlines how fierce competition for skilled employees and increasing investor scrutiny should challenge boards to think about equity as both a retention tool and a long-term investment strategy.
Stock Expense on the Rise. Over the past few years, companies have ramped up SBCE budgets. At the 75th percentile, SBCE now takes up 6.8% of revenue, up from 4.5% in 2016.
This surge reflects not only labor market volatility but also a shift toward deeper investments in human capital.
The challenge: unlike traditional metrics, SBCE lacks a standardized way to measure return—making it harder to justify unless tied clearly to growth and profitability.
So, is awarding stock worth it? The answer depends on your pay philosophy.
Some companies prefer wide equity distribution to engage the broader workforce, while others tailor to fewer, high-impact roles. Be clear about the rationale:
Is stock truly the best motivator? Or does cash get you further?
Does it drive the right behavior?
Do employees see how their performance impacts long-term value?
Are employees impacted appropriately when targets are exceeded or fall short?
Measure ROI. Boards should ensure their SBCE strategy has the return they expect:
Model future financial performance and headcount projections to determine how high SBCE can go if growth expectations fall short.
Benchmark practices against peers to understand how equity use metrics compare (e.g. SBCE as a percentage of revenue and total aggregate annual equity spend).
Listen to investor concerns about dilution and expense levels.
The Bottom Line. Reforming SBCE isn’t a one-quarter fix. It’s a multi-year strategy requiring coordination across HR, finance, and the C-suite to ensure stock is not a runaway cost.
Develop a goal range based on the company’s business and talent strategies.
Incorporate earnings metrics to communicate the importance of profitability.
Communicate with stakeholders on how this investment helps achieve your goals.
Megan Wolf
Director, Practice, HR Policy Association and Center On Executive Compensation
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