Zoom Video Communications is reducing the practice of paying workers with company stock, joining peers such as Salesforce and Workday in limiting their reliance on a common compensation technique in the tech industry.
Equity in Zoom has been issued to workers at a rate that is “not sustainable”, chief executive Eric Yuan wrote this week in a note to employees. “We grant a significant amount of shares each year that has led to very high dilution. Put simply, we are granting too much equity and must proactively reduce it.”
The technology industry has long paid workers a large chunk of their compensation in company stock. The idea is to align employees’ interests with the company’s success in an industry where frequent job swaps are common.
But continually issuing new stock for compensation reduces the value of existing shares, which is called dilution. Investors and executive teams have in recent years raised concerns about the practice. In addition to adjusting compensation plans, dilution can be countered by company share buybacks.
Software companies such as Salesforce, Workday and ServiceNow have called out new efforts to manage dilution from stock-based compensation this year. “We’ve really tried to manage very, very tightly what we’re giving out in terms of stock,” Amy Weaver, chief financial officer of Salesforce, said during a March event.
The Zoom CEO said the “annual performance equity plan” would be phased out over the next two fiscal years beginning in February and the company would reduce the amount of equity granted to new hires. Some employees will receive higher cash bonuses, he wrote. A Zoom spokesperson declined to comment.
“This issue isn’t unique to Zoom; our peer group is facing similar challenges,” Yuan wrote in the note. Zoom’s stock is down about 6 per cent this year, and hit a record closing low of US$55.32 last month after a historic pandemic boom-and-bust in share value. Prior equity plans were issued to balance a volatile pandemic stock price and recently lower value, Yuan wrote. BLOOMBERG
