By Spencer Jakab

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Elon Musk probably won't get all of the stock Tesla's shareholders voted to give him last week, but the award is another sign that investors are losing touch with reality.

Never mind what's fair-a trillion dollars is real money: Sending men to the moon cost barely a fourth as much in today's dollars. It seems less astronomical now that several companies, and even a cryptocurrency, have joined the 13-digit club.

High market values make giant compensation packages less shocking, but it's the way they're paid that really blinds investors to the cost. No company would or could write a single person a check for even half of what Musk might receive. Awards in the form of stock just aren't viewed the same way as actual dollars.

They should be. While it's easier to conjure up-all corporate boards need is a shareholder vote instead of an awkward visit to their lenders-stock-based pay also has a real impact on shareholder wealth. It dilutes existing stockholders, reducing their share of future profit. The sums are largest at big tech companies. The real distortions are at the smaller, less profitable ones.

Take cloud-computing specialist Snowflake, whose chief executive told investors in September that it had "delivered yet another strong quarter." Its own version of operating profit showed it earned $128 million for a healthy 11% margin.

But it actually lost $340 million, according to its statutory accounts, for an operating margin of negative-30%. The difference was largely adding back stock-based compensation costs.

Snap, Snapchat's owner, said that it had "adjusted Ebitda" of $509 million in 2024. (Ebitda is a measure of profitability that excludes interest, tax and some accounting charges). Its statutory net loss for the year was nearly $700 million, though. That latter figure included more than $1 billion in stock-based compensation.

Ride-sharing company Lyft reported three times as much in "adjusted Ebitda" as net profit last quarter after adding back share-based compensation and other expenses. Stock awards were bigger than its statutory profit.

One reason shareholders don't protest is that tech executives are often viewed as irreplaceable visionaries. Why chase away the golden goose? Another is that many companies-though not Tesla-do big share buybacks that soak up those awards.

There's nothing inherently wrong with share-based compensation. It's prevalent in Silicon Valley and biotech because of startup culture. With limited cash, a company operating out of a garage needs to dangle the possibility of a bonanza to attract top talent.

But established companies might just be trying to look better. The more they can exclude from cash costs, the easier it is to report pleasing results: "Earnings Before Bad Stuff."

Companies profitable enough to do billions in buybacks can also afford to pay executives more transparently. And if they aren't actually bringing in enough money, maybe investors shouldn't be so generous with theirs.

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(END) Dow Jones Newswires

November 10, 2025 07:59 ET (12:59 GMT)

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