(Bloomberg) — Zoom Video Communications Inc. is following peers including Salesforce.com Inc. and Workday Inc. in scaling back its practice of paying employees with company stock, limiting its reliance on compensation packages common in the technology industry.
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Zoom shares are being distributed to employees at an “unsustainable” pace, CEO Eric Yuan wrote in a memo to employees this week. “We distribute significant amounts of stock each year, resulting in very high dilution. Simply put, we are distributing too much stock and need to aggressively reduce it.”
For many years, the tech industry has paid a large portion of its employees in company stock, the idea being to align employees' interests with the success of the company in an industry where frequent job changes are the norm.
However, continually issuing new shares as compensation reduces the value of existing shares, a process known as dilution. Investors and management have raised concerns about the practice in recent years. In addition to adjusting compensation plans, dilution can also be addressed through a company's share buybacks.
Software companies including Salesforce, Workday Inc. and ServiceNow Inc. have called for new efforts this year to manage dilution from stock compensation. “We’ve tried to be very tightly tethered to what we pay out in terms of stock,” Salesforce Chief Financial Officer Amy Weaver said at an event in March.
Zoom's CEO said its “annual performance stock plan” will be phased out over the next two years, starting in February, reducing the amount of stock given to new hires. Some employees will also get increased cash bonuses, he wrote. A Zoom spokesman declined to comment.
“This issue is not unique to Zoom, as other companies in the industry are facing similar challenges,” Yuan wrote in the note. Zoom's shares have fallen about 6% this year, hitting an all-time low of $55.32 last month after the stock price surged and fell historic highs and lows during the pandemic. The previous equity plan was issued to offset the stock price volatility caused by the pandemic and the recent share price decline, Yuan wrote.
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