That’s an interesting point. They are and they aren’t. Cash as in actual dolla dolla bills they are not. Cash in terms of GAAP liabilities they are. But “stock-based compensation” is generally the largest part of what public tech companies exclude when they report non-GAAP earnings. And the lion’s share of those will be RSUs.
Why do companies think this is a reasonable way to report? (Other than simply trying to look better for non-experts who don’t know how this stuff works.) The most obvious reason from my perspective is that this is a variable cost that is already baked into the model. The variable part is obvious — if I make a promise to give you 300 shares the value side is going to change over time. If our earnings are crappy and everyone sells the stock (to who?!) then the value of your compensation has just dropped. The cost side is also weird — these shares aren’t bought on the open market at time of vest, they are in employee pools that are set aside ahead of time (in fact my understanding is that the usual terms of an RSU require the stock to be set aside at time of grant). So theoretically they should cost whatever the fair market value is at the time the pool was created. Either way they aren’t cash that left the company’s bank account and went to the employee, like regular compensation.
That’s an interesting point. They are and they aren’t. Cash as in actual dolla dolla bills they are not. Cash in terms of GAAP liabilities they are. But “stock-based compensation” is generally the largest part of what public tech companies exclude when they report non-GAAP earnings. And the lion’s share of those will be RSUs.
Why do companies think this is a reasonable way to report? (Other than simply trying to look better for non-experts who don’t know how this stuff works.) The most obvious reason from my perspective is that this is a variable cost that is already baked into the model. The variable part is obvious — if I make a promise to give you 300 shares the value side is going to change over time. If our earnings are crappy and everyone sells the stock (to who?!) then the value of your compensation has just dropped. The cost side is also weird — these shares aren’t bought on the open market at time of vest, they are in employee pools that are set aside ahead of time (in fact my understanding is that the usual terms of an RSU require the stock to be set aside at time of grant). So theoretically they should cost whatever the fair market value is at the time the pool was created. Either way they aren’t cash that left the company’s bank account and went to the employee, like regular compensation.
Accounting is hard!