Tech CEOs can’t afford to ignore their stock prices
It’s a question that faces every public company: Should corporate employees care about day-to-day stock fluctuations?
Last week, Shopify Inc. CEO Tobi Lutke shared his perspective by tweeting that the "relationship between stock price and a public company is the same as the relationship between a pro sports team and betting markets. Sort of related, but irrelevant to the players on the field."
The comment comes as Shopify's stock is down 50% year-to-date (YTD).
New York University finance professor Aswath Damodaran has reservations with Lutke's take and wrote to me in an email that "it is amazing how CEOs seem to discover that markets don't work only when their stock prices go down."
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Damodaran has previously written on how stock prices can affect decision-making from lender negotiations to cash-raising opportunities. But here's another relevant point:
"A surge or drop in stock prices can also affect a company's capacity to retain existing employees, especially when those employees have received large portions of their compensation in equity (options or restricted stock) in prior years. If stock prices rise (fall), both options and restricted stock will gain (lose) in value, and these employees are more (less) likely to stay on to collect on the proceeds."
While Lutke has built an incredible business with long-term focus, tech stock prices are, in fact, very relevant for talent retention right now (translation: it does have an impact on players on the field).
Over the past decade, stock compensation — which was basically only moving up and to the right — was one of the primary draws of working in tech. The recent growth selloff has made tech stock much less sexy.
To partly compensate for this shortfall, Big Tech has offered either cash or more stock in recent months:
October 2021: Alphabet removed the cap for cash bonuses (it was at $6 million).
February 2022: The ever-frugal Amazon doubled the maximum engineering salary to $350,000.
March 2022: Apple handed out $200,000 special stock bonuses to key software and hardware engineers. The iPhone maker did a similar out-of-cycle bonus drop in December.
The stock prices for these tech giants — Alphabet (-3% YTD), Apple (-4% YTD), Amazon (flat YTD) — aren't even down that much compared with the rest of the sector.
Back to Shopify: The Canadian e-commerce firm's stock-based compensation has risen every year since it went public (disclaimer: I own some $SHOP and am very Canadian).
But as noted, over the last four months, its stock has plunged. According to, Shopify set a goal to hire 2,021 software engineers in 2021. As part of the recruiting effort, the company dished out $331 million in stock options and restricted stock units (RSUs). With the share price down, many of those options can't be exercised and the RSUs will likely have "a lower-than-expected award once the units vest."
Lutke isn't the only e-commerce trailblazer to have downplayed day-to-day stock movements. Amazon founder Jeff Bezos used to tell employees at company all-hands meetings, "Look, when the stock is up 30% in a month, don't feel 30% smarter. Because when the stock is down 30% in a month, it's not going to feel so good to feel 30% dumber."
You can't just wish away the psychology of seeing paper wealth evaporate, though. Meta CEO Mark Zuckerberg is dealing with a 34% YTD sell-off and recently explained the effect on his employees on the Tim Ferriss podcast:
"People are psychologically much more interested and capable of focusing on a long-term outcome when they feel secure in the near-term. When there is a lot of near-term thrash or prospects don't look good. Or markets are down overall, even if it's not specific to your company…that definitely strains people's time horizons."
As if falling stock prices weren't enough, tech companies face fierce competition for talent from the new next thing: crypto and Web3 startups, which raised $28 billion from investors last year, according to the New York Times. Some crypto startups are offering "compensation packages on a par with the biggest tech firms because of how easily employees can convert their company's 'tokens' — or the underlying cryptocurrency backing the start-up — into cash."
Value investor Benjamin Graham famously said, "In the short run, the market is a voting machine, but in the long run, it is a weighing machine."
Saying that investors and operators should ignore day-to-day stock volatility and focus on long-term value creation is the right philosophy for company-building. It's tough to follow, though, when "voting" includes employees leaving for greener pastures.
Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.
