Stock-Based Compensation (SBC): Impact on Equity and Crypto Projects

1. Overview and Definition

Stock-Based Compensation (SBC) is a method of compensating employees, executives, or service providers with equity ownership rather than just cash. In the traditional financial world, this involves company shares; in the decentralized space, it often involves native project tokens (frequently termed Token-Based Compensation).

The core objectives of SBC are twofold: first, it preserves cash reserves for high-growth companies or startups. Second, it aligns the incentives of the workforce with shareholders or token holders, theoretically ensuring that employees work toward the long-term appreciation of the asset. As of 2025, major asset managers like BlackRock have increasingly adopted profit-sharing and carry programs to retain top-tier talent in competitive markets such as private equity and alternative assets.

2. Types of Equity Vehicles

Companies and projects use various instruments to distribute ownership, each with different vesting and tax implications:

• Restricted Stock Units (RSUs): These are grants of shares that vest over a period of time. Common in established tech firms, they are worth whatever the stock price is at the time of vesting.
• Stock Options: The right to buy shares at a pre-set "strike price." These offer massive upside if the stock price rises significantly but can expire worthless if the price stays below the strike.
• Employee Stock Purchase Plans (ESPPs): Programs allowing employees to buy company stock at a discount, usually through payroll deductions.
• Token-Based Compensation (Web3): In the crypto sector, contributors receive tokens (e.g., governance tokens) usually subject to smart-contract-enforced vesting schedules. This ensures the team remains committed to the project's longevity.

3. Accounting Principles (ASC 718 & IFRS 2)

Under US GAAP (ASC 718) and IFRS 2, SBC is recognized as an operating expense on the Income Statement. This is a non-cash expense, but it must be reported to reflect the cost of labor.

• Fair Value Measurement: For stock options, companies often use the Black-Scholes model to estimate value on the grant date.
• Expense Recognition: The cost is "amortized" (spread out) over the vesting period. For example, if an executive is granted $1 million in RSUs vesting over four years, the company recognizes a $250,000 expense annually.
• Tax Implications: SBC creates differences between book income and taxable income. Significant shifts in tax policy, such as California’s proposed 2026 Billionaire Tax Act, have sparked debates on how wealth taxation might impact the incentive structures for startup founders and tech talent.

4. Impact on Financial Analysis and Valuation

For investors, understanding SBC is vital because it affects the bottom line and share structure. According to recent reports, companies like Starbucks (which paid its CEO $31 million in fiscal 2025) and RTX (which saw its buybacks scrutinized by the US government) highlight the intense focus on executive pay versus shareholder returns.

• Non-GAAP Adjustments: Many tech companies "add back" SBC to their earnings to show "Adjusted EBITDA." Critics argue this masks the true cost of labor, as the dilution is very real for shareholders.
• Dilution and Share Count: As new shares or tokens are issued to employees, the total supply increases. This dilutes existing holders, potentially lowering Earnings Per Share (EPS).
• Cash Flow vs. Profitability: SBC improves Operating Cash Flow (since no cash leaves the bank) but reduces Net Income. In tight liquidity environments, such as the market seen in late 2025, cash preservation via SBC becomes a strategic necessity.

5. Market Trends and Governance Concerns

In 2025 and 2026, the global macro environment has shifted toward a more cautious stance. High funding costs (with 10-year Treasury yields remaining elevated) have made cash more expensive, leading more firms to rely on equity-based incentives. However, this has led to "governance concerns," where excessive SBC is granted even during periods of poor stock performance.

To combat dilution, mature companies often engage in Share Buybacks. However, as of January 2026, regulatory scrutiny on buybacks has increased, with some government executive orders linking buybacks and executive compensation to operational delivery schedules, as seen in the defense sector.

6. Comparison: Equity vs. Token Compensation

While the goal is the same, the execution differs between Web2 and Web3:

• Liquidity: Stock options often have a 10-year lifespan. Crypto tokens can become liquid much faster, although many projects now use long-term "locks" to prevent immediate dumping.
• Regulatory Environment: Equity is strictly governed by the SEC. Token grants occupy an evolving legal landscape. Bitget users and investors should note that while tokens offer a new way to align interests, they are often priced as high-volatility risk assets compared to traditional stocks.

As the market moves into 2026, the focus for both equity and crypto investors will be on "hard constraints"—identifying which companies and projects use their equity efficiently to drive growth without excessive dilution. For those looking to manage digital assets and explore token-based ecosystems, using a secure platform like Bitget provides the tools necessary to track these evolving market trends.