Twilio Is Trying to Fix One of Its Biggest Problems
Stock-based compensation can be a good way to retain employees and to ensure their interests are aligned with those of shareholders. But it's not a free lunch despite the deceptive non-GAAP figures touted by many companies. Stock-based compensation is not a cash cost, but it is a real cost.
For one, stock-based compensation dilutes shareholders by increasing the share count. Some companies hand out stock options like candy on Halloween, then turn around and buy back their own shares to prevent this dilution. All this does is turn a non-cash expense into a cash expense, although the accounting doesn't capture that reality.
Another issue is that stock-based compensation can create bad incentives for management. If the mission is to maximize free cash flow, for example, one way to do that is to shift as much compensation as possible to equity.
Source Fool.com
