Stock based compensation - To whose benefit

“Since it became a public company in 2004, has paid its employees $4.8 billion in stock-based compensation. That’s above and beyond actual cash compensation. For tax purposes, it’s actually expensed quite a bit more than that, namely $5.2 billion. The total amount of net income available for common shareholders? $360 million. On total revenue of $52 billion.”…

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The stock has tripled over the last 5 years, but I wager that dilution has reduced the total returns for Salesforce.

The theory is though that eventually (and Salesforce says that will still be a long time coming as they are now moving onto $20 billion in recurring revenues from current $13 at 25% per annum) they will become a cash machine and buy back these shares that are essentially interest free unsecured long-term loans to fund the business while it is in its hyper-growth phase.

Theory and reality often collide, but if the ROI is high as it almost always is with enterprise class customers and recurring high switching cost products that may produce lifetime customers, it makes sense on paper. There is nowhere else one can get financing terms at a better rate and under better conditions for repayment and risk.

Thus, why investors put up with it, and thus why companies pursue this business model. Of course there has to be limitations to the dilution, and I am sure some companies go well beyond the bounds of ROI in regard to abusing stock options, but that is the business case for it.