Zoom has announced a reduction in employee stock-based compensation, following a growing trend in the tech industry. The decision is driven by concerns over stock dilution, which has negatively impacted the value of existing shares. Other major companies, such as Salesforce and Workday, have implemented similar changes to manage the financial strain caused by issuing too much stock.
CEO addresses unsustainable equity practices
In a memo to employees, Zoom CEO Eric Yuan explained the reasoning behind the move, acknowledging that the company had been granting shares at an unsustainable pace. “We grant a significant amount of shares each year, which has led to very high dilution. Put simply, we are granting too much equity and must proactively reduce it,” he wrote.
Stock-based compensation has long been a popular way for tech firms to reward employees, allowing them to own shares at discounted rates. However, this practice now alarms investors and executives, as excessive stock issuance leads to dilution. This decreases the value of existing shares, prompting companies like Zoom to reconsider their approach.
Zoom's stock value faces a sharp decline
Zoom's stock experienced a meteoric rise during the pandemic, reaching a high of US$559 in late 2020 as remote work and virtual meetings surged. However, the value of Zoom's stock has since dropped dramatically, now at US$67.53. Prices began to dip below US$100 as early as 2022, with a steady decline following the initial spike.
The drop in value has added pressure on companies like Zoom to control stock-based compensation, as the widespread issuance of shares contributes to further dilution. Both Salesforce and Workday have also introduced tighter controls on equity distribution to manage the impact on stock value.
Yuan emphasised that the issue is common to Zoom, noting that other companies in the same sector face similar challenges. He stated, “This issue isn't unique to Zoom; our peer group is facing similar challenges.”
Economic conditions and layoffs add to the challenges
In addition to managing stock dilution, Zoom has been navigating the economic conditions following the pandemic. The company announced its largest pandemic-related layoff in February 2023, which affected approximately 1,300 employees. More job cuts followed, with around 150 workers being made redundant earlier this year.
Despite these challenges, Zoom continues to invest in artificial intelligence (AI) to maintain its position as a leading provider of online collaboration tools. The company remains committed to evolving its services and technologies, aiming to stay relevant in a post-pandemic world where the demand for virtual communication has become more balanced with in-person interactions.
As Zoom scales back its stock compensation programme, the company is adjusting to internal and external pressures. With falling stock prices and a changing tech landscape, this move is seen as necessary to preserve shareholder value while continuing to reward employees in a more sustainable manner.
