Using equity as part of employee compensation reinforces an ownership culture across the employee base. And ownership by employees, executives, and board members has been shown to create value over the long term. Having “skin in the game” is largely considered a good idea. Yet, companies often receive pushback from proxy advisors such as ISS that issuing shares to provide equity to their team causes dilution, even if the companies repurchase an equal number of shares in the marketplace.

How can there be dilution when the number of shares issued and the number repurchased line up?

ISS’s dilution formula produces a figure closer to gross share issuance than net dilution. For companies with active buyback programs and broad-based equity plans, the gap between the two can be significant enough to drive an Against recommendation that doesn’t reflect economic reality.

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