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.”
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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.”
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.
Read the full article here by Trung Phan, Advisor Perspectives
