As this article from the New York Times discusses, boards, particularly boards of technology companies, are coming under increasing scrutiny for the stock compensation strategies they use. Investors often, but not always, disregard stock compensation when they evaluate the financials of a company particularly when that company's workforce is a key strategic asset as it often is for technology firms.
But when times are tough, investors starting taking a close look at stock compensation. The pressures are two fold, and they work in opposite directions. Investors examine the impact of stock compensation on the companies financials and see the negative impact to earnings and the increased dilution of their stake in the company. This scrutiny leads investors to want the company to scale back the company's use of stock compensation. At the same time, investors are often concerned about whether the company can retain its workforce if the company's stock price declines. Fending off other companies who want to poach talented employees suggests a need to increase stock compensation.
Boards are right in the middle of these competing pressures and need to exercise great care a good judgment in order to set the right strategy for stock compensation in tough times. And, it is critically important to appropriately document that strategy. Tech companies have gotten into hot water in the past, including even luminaries like Steve Jobs, for not adequately documenting stock compensation and following appropriate procedures when implementing changes to a stock compensation plan. Your company's attorneys will be the point people in helping to ensure that these requirements are met, but a board portal is also helpful in order to keep your board organized and its decisions appropriately documented.