It’s first time, all investors have the way to peek how much stock-based compensation company paid to employee.
Changes in accounting standards
On November 27, 2023, the Financial Accounting Standards Board (FASB) issued the Accounting Standards Update, which improves the disclosures that public corporate entities must make about their major business unit, meeting the needs of investors and other capital allocators for more and more detailed information about the expenses of each unit of a public company.
What benefits does it bring to investors?
BUs need to detail costs and expenditure items
Thanks to the Accounting Standards Update released by the Financial Accounting Standards Board (FASB) mentioned above, careful investors should have noticed in the past year that U.S.-listed companies have begun to list detailed costs, expenses, capital expenditures and other items of each business unit by the company’s first-level business unit (aka BUs) when releasing financial reports. Prior to this, companies would only announce the revenue of each major first-level business unit at most, and the costs of each business unit were not within the scope of public disclosure; only the costs, expenses, capital expenditures and other items of the entire company would be announced.
Have a standard for comparison
Now, investors can examine the operating costs, expenses, capital expenditures and other details of each business unit of listed companies one by one, especially compared with other business unit of the company, and even compared with competitors, to see whether they are reasonable and whether the company is spending money indiscriminately, squandering investors’ money, hollowing out the company and benefiting itself.
Is the stock price justified?
More importantly: investors now have more information and can decide for themselves whether it is worth spending money to buy the company’s stock. Is this price reasonable? Why should I pay such a high share price? Is the premium reasonable?
Tech behemoths spend most money on SBC
Meta
Meta has begun reporting segment employee compensation, which is Meta’s largest single expense. Meta, whose main division includes Facebook, Instagram and its other apps, will spend $31 billion on employee salaries in 2024, or 41% of all spending in the division.
Another division of Meta is Reality Labs, which is the division of Meta’s virtual and augmented reality hardware and metaverse services. The division has been losing money, with operating losses of $69 billion since 2019, and is expected to increase by 10% in 2024 compared to the previous year.
In 2024, Reality Labs employee compensation will reach $10 billion, up 14% year over year, with the division generating $2.1 billion in revenue. The division’s operating loss is expected to be $18 billion in 2024, with employee compensation accounting for 58%. Most of these compensations are not in cash, but in the form of SBC (stock-based compensation). Overall, Meta paid out $41 billion in compensation in 2024; 40% of that came in the form of stock grants to employees.
Alphabet
Alphabet’s 2024 annual report also revealed a similar situation. Alphabet’s Google cloud computing unit is expected to spend $37 billion in 2024, 55% of which is employee salaries.
This is a significant change from 2023, when employee salaries accounted for 61% of cloud expenses. The change was due to $3.4 billion in new depreciation charges from Google’s artificial intelligence capital spending spree, rather than a reduction in employee salaries, which increased 8% year-over-year.
Other parts of Google are less reliant on high-paid workers, with 24% of their expenses going to labor costs. Like Meta, a large portion of Alphabet’s employee compensation is stock-based, SBC was at 35% in 2024.
Other companies
But some companies may choose to use the new standard to make existing reports easier to understand. T-Mobile lists 12 different fees in its single wireless division. Only employee payroll expenses are new to its report, but this is the first time T-Mobile has broken out separate expenses like leases, advertising and bad debts on the same table.
“As other industries report back, we’re going to see some interesting differences between different industries, between different companies, and between how these different types of companies view things internally,” Moss Adams said. In that context, 2025 could prove to be an instructive year for shareholders.
Related articles
- “How much stock-based compensation company paid?“
- “Pros and cons of employee stock options as compensation“
- “M&A options’ taxation, accounting items, and rights and obligations arrangements“
- “Unreasonable accounting practices in financial statements“
- “Dear Shareholder“
- “Changes in company insider and institution shareholding ratio“
- “Insider trading and regulations on U.S. stocks“
- “The more shares CEO owns, the higher stock return“
Disclaimer
- The content of this site is the author’s personal opinions and is for reference only. I am not responsible for the correctness, opinions, and immediacy of the content and information of the article. Readers must make their own judgments.
- I shall not be liable for any damages or other legal liabilities for the direct or indirect losses caused by the readers’ direct or indirect reliance on and reference to the information on this site, or all the responsibilities arising therefrom, as a result of any investment behavior.
