Although stock-based compensation has its benefits, it can come with drawbacks for investors, employees, and other key stakeholders.

Most notably, increasing the number of outstanding shares can dilute the ownership of existing shareholders. While this can be advantageous in terms of aligning interests with the company’s performance, it can also significantly reduce the value of those existing shares.

Additionally, if a company enters a period of falling stock prices, offering stock-based compensation is less likely to be seen as a worthwhile benefit when it comes to recruiting and retaining talent.

How a company reports stock-based compensation on their financial statements can also have a negative impact in some cases.
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