On p.115, it outlines how the S&P has spent as a whole over half its cash flow on buybacks without denting the share count because of the expensive SBC. Nuts!


The irony is that these companies that most heavily use stock based compensation are actually among the most profitable companies. They are not spending their profits on SBC, that's not how the accounting works. They are spending a considerable part of their cash flow on SBC, yes, but since that spending is expensed, the earnings they report is what is left over AFTER all the compensation expense. To say it another way, companies that choose to remunerate their employees with cash AND SBC still end up doing quite well.As an example, Alphabet had $350b in revenues last year, $125b in cash flow, $22b in SBC (!) and $100b in GAAP net earnings. (I love a company with a round number like that: their market cap is $2.1t, so they are trading at 21 times earnings...)

You can't say they made $100b and then used $22b of that to sterilize share issuance - that would be double counting. You could say they got $350b in revenue, used whatever it is, say $200b in salaries and another $22b in SBC, and some other expenses, and ended up with earnings of $100b. Whether it would have been better to spend $222b in salaries and $0b in SBC or to have 10% of the salaries as SBC is another question, but as a shareholder, I still get my $100b, and I don't begrudge the employees getting paid $222b one way or another.

dtb