what is overhang 
overhang is a measure of the potential dilution of stock shares due to possible awards of stock based compensation it is usually represented as a percentage and is calculated as stock options granted plus the remaining options to be granted divided by the total shares outstanding so ro tso understanding overhangthere is no rule of thumb for determining how much overhang is harmful to common shareholders but generally speaking the higher the number the greater the risk the options overhang decreases after a public offering because the number of shares outstanding increases if a company has a very high options overhang it must generate even higher levels of growth and profits to compensate for the overhang s dilutive effects on earnings per share eps and therefore investor returns this in turn can lead managers to take on more risk pay out less in dividends and take on more debt all of which can result in greater volatility in the company s stock price companies with high levels of employee stock ownership on the other hand tend to have stronger financial performance pay higher dividends and see less stock price volatility 