Perception is paramount.
Although offering stock bonuses has some cash flow advantages, there is a clear psychological benefit.
Imagine you’re a shareholder of XYZ co. You hear that the top 5 executives are being paid 30 million in cash bonuses this year. You’re outraged. How can they pay themselves so much money in an economy like this?
Now imaging the same situation but this time you hear that they are getting stock. You’re outraged. But your stock doesn’t lose value; actually it went up that day. You go home quietly.
In theory, both events had the same monetary impact. Paid 30 Million in cash or dilute the share pool by 30 million. But they have vastly different psychological outcomes.
Issuing stock is like printing money. If the individual does not feel the pain of inflation (with a reduced share price in the short term), then the old adage “No harm, no foul” applies. Indirect losses in the future are mostly ignored by people. Many may not even understand.
But everyone understands, and no one ignores, giving up cash.
Hamilton Property Management Company - Del Franco Inc.