Stock-Based Compensation Is the Latest Risk for Tech Stocks

For years, the lavish stock grants and options handed out by tech companies went largely ignored by investors. Now, the practice is finally getting attention, and it’s likely going to bring bad news for software investors.

As growth rates have tumbled and scrutiny has increased, the high levels of equity-based compensation are now a structural problem for the tech industry. The coming dilution of shareholder ownership from stock-based compensation is a recipe for underperformance, says SVB MoffettNathanson analyst Jackson Ader who has studied share issuance across the software industry.