ShmoopTube
Where Monty Python meets your 10th grade teacher.
Search Thousands of Shmoop Videos
Wealth Videos 168 videos
What do you need to retire? Retirement - think: 401k, pension fund, IRA, roth IRA, etc. All of these savings socked away while you worked hard are...
What are T-Notes, T-Bonds, and TIPS? T-Notes are debt securities (like bonds) that are issued by the government and mature within one to 10 years....
What is AMBAC? AMBAC stands for American Municipal Bond Assurance Corporation. It provides insurance for municipalities that sell muni bonds, such...
Finance: What is stock based compensation? 7 Views
Share It!
Description:
What is stock based compensation? Stock based compensation is exactly what it sounds like: a way to compensate employees using stock. It’s used in the form of purchasing options that employees may exercise, usually after a few years.
- Social Studies / Finance
- Finance / Financial Responsibility
- Life Skills / Personal Finance
- Finance / Finance Definitions
- Life Skills / Finance Definitions
- Finance / Personal Finance
- Courses / Finance Concepts
- Subjects / Finance and Economics
- Finance and Economics / Terms and Concepts
- Terms and Concepts / Accounting
- Terms and Concepts / Board of Directors
- Terms and Concepts / Company Management
- Terms and Concepts / Metrics
- Terms and Concepts / Tax
- Terms and Concepts / Trusts and Estates
- Terms and Concepts / Wealth
- College and Career / Personal Finance
Transcript
- 00:00
Finance a la shmoop What is stock based compensation While
- 00:07
investors want management with skin in the game when your
- 00:11
ceo has ninety eight percent of her net worth tied
- 00:14
up in the stock of the company that she's running
- 00:17
well presumably she runs it better or at least in
Full Transcript
- 00:19
theory anyway So over time management has been paid in
- 00:23
equity ownership grants as well as in cash that is
- 00:27
company management gets paid in stock options and in stock
- 00:31
or rather shares of the company simply granted to them
- 00:34
in lieu of cash Why do companies not just pay
- 00:38
cash while they want management toe Have that whole ownership
- 00:42
thing going for them to act like owners You know
- 00:45
not just like union employees They want management with direct
- 00:48
stakes in how well or pa poorly the business per
- 00:51
forms in the long run and think about the dynamics
- 00:55
of a ceo getting paid even a relatively huge million
- 00:58
dollars a year in salary and nothing else that's it
- 01:02
well that ceo takes a company from four hundred million
- 01:06
dollars in sales and thirty million in profits to five
- 01:09
years later two billion dollars in sales and for three
- 01:13
Hundred million in profits that is the ceo made the
- 01:16
company at least ten times more valuable certainly ten times
- 01:20
more profitable and in five years that's really good But
- 01:23
that ceo just got their single million dollars a year
- 01:26
each year along the way Well that ceo would not
- 01:29
have financially participated personally in making shareholders so much wealthier
- 01:35
and that's not fair right If management of the company
- 01:38
makes huge returns for investors doesn't it seem right that
- 01:41
management should have huge returns for themselves and not just
- 01:45
a basic salary and male Maybe a little bit of
- 01:47
a bonus there too well some companies loan money at
- 01:51
low interest rates to ceos and other top execs so
- 01:54
that their ableto buy shares in the company leveraged well
- 01:58
Other companies just grant shares to management and still others
- 02:02
just grant stock options is kind of a spiff above
- 02:05
their cash compensation So yeah it's all about having skin
- 02:08
in the game which if you play football without sufficient 00:02:11.45 --> [endTime] padding is a definite possibility
Related Videos
GED Social Studies 1.1 Civics and Government
What is bankruptcy? Deadbeats who can't pay their bills declare bankruptcy. Either they borrowed too much money, or the business fell apart. They t...
What's a dividend? At will, the board of directors can pay a dividend on common stock. Usually, that payout is some percentage less than 100 of ear...
How are risk and reward related? Take more risk, expect more reward. A lottery ticket might be worth a billion dollars, but if the odds are one in...