Analysing Share-based Compensation across the ASX 300

Key takeaways

• Companies in the Materials, Information Technology, and Real Estate sectors have the highest proportion of total pay delivered in equity.
• Loss-making companies are more likely to pay a higher proportion in share-based compensation.
• The data suggests that equity can be used more broadly on the ASX 300 to attract and retain while preserving cash.

Share-based compensation by sector

Share-based compensation is a tool companies can use to preserve cash in addition to aligning outcomes for employees with the interests of shareholders. We analysed ASX 300 company disclosures for total employee expense and share-based compensation expense to assess which companies are most likely to use equity in rewarding employees.

The proportion of total employee expense that comprised of share-based compensation was 3.3% at the median across the ASX 300.

Companies in the Materials, Information Technology, and Real Estate sectors had the highest proportion of total employee expenses paid in the form of share-based compensation.

Figure 1: Median share-based compensation expense as % of total employee expense by sector

Profitability the biggest influence

Loss-making companies are more likely to pay employees in equity compared to profitable companies that can better afford higher cash compensation. Companies with negative pre-tax profit paid 19% of total employee expenses in equity at the median, compared to 3% for companies with positive pre-tax profit.

Table 1: Share based expense as a % of total employee expenses by company profitability

Share-based compensation per employee highest in natural resources and technology sectors

The share-based compensation expense per employee, calculated by dividing total expenses by number of employees, is highest in the Energy, Materials and Information Technology sectors.

Figure 2: Share-based compensation expense per employee (AUD)

Companies in the Industrials, Consumer Staples and Consumer Discretionary sectors have the lowest share-based compensation expense per employee, driven both by larger workforces in these sectors and expected lower proportion of employees granted equity (compared to e.g. technology companies where equity grants are common).

Figure 3: Share-based compensation per employee vs number of employees

So, what does this all mean?

While share-based compensation is common in some sectors, e.g. Information Technology, the data suggests that equity can be used more broadly by ASX-listed companies to attract and retain talent while helping preserve cash.

Equity grants that vest monthly or quarterly based only on continued service (restricted share units or RSUs) can be valuable to employees, especially when compared to performance-contingent LTI grants with uncertain vesting outcomes.

Dilution for shareholders is a factor to consider when designing broad-based employee equity plans. However, equity plan dilution limited to 5% of issued share capital is supported by proxy advisers. Many ASX 300 companies will be well below this limit for their current equity plans.