If you want to spur innovation, is it better to lavish stock-based compensation on employees or boost spending on research and development? The question is posed implicitly by a recent study that compared R&D spending with stock options and restricted stock awarded to employees of tech companies. The surprising finding: Quite a few companies, including Apple and eBay, gave out more in stock pay in 2008 than they spent on research.
The comparison is aimed at helping investors decide whether companies are striking the right balance between employee pay and other obligations and expenses, says the report’s author, Jack T. Ciesielski, founder of Baltimore investment and research firm R.G. Associates. “It makes sense for investors to relate [stock compensation] to other uses for these same dollars,” he says. Among the other things companies could have done with their stock or the proceeds of a public stock sale: pay down debt, increase capital expenditure, strengthen the pension fund, or just shore up the balance sheet.
For technology companies, R&D can serve as lifeblood — the route to higher-margin, breakout products. But U.S. companies spend less on it than they used to and now rank fifth among 40 nations in a report issued earlier this year by the Information Technology & Innovation Foundation [ITIF], a Washington-based think tank. Apple and eBay were among six companies in the Standard & Poor’s 500-stock index that spent more on stock gifts last year than on research, Ciesielski found.
At a time of intense public debate over the size of CEO pay, the findings may rankle some who believe U.S. corporations are paying executives too much and innovating too little. At the same time, many in the technology industry consider compensation that is tied to the future performance of a stock an effective way to induce employees to hatch…