What is stock-based compensation?
It is pay given in the company's own shares instead of cash. The common forms are restricted stock units (RSUs), options, performance awards and employee share purchase plans.[S1]
An RSU is a promise of shares that arrive after a waiting period, called vesting. An option is a right to buy shares later at a fixed price.
Under US accounting (FASB ASC Topic 718), this pay is a cost. It is measured at fair value and recognised over the period the employees work for it.[S1]
Why is it easy to misread?
No cash leaves the company when the shares are handed over. So the cost can disappear from some of the numbers people look at first.
It still has a price. Existing shareholders end up owning a smaller slice of the company, because new shares are created for employees. That is dilution.
Where does it show up in the income statement?
It sits inside the normal cost lines, such as research and development or sales and admin. The SEC staff's view is that it belongs in the same lines as cash pay to the same people.[S1]
Companies may also show how much of each line is stock-based pay. That can go in a note, the cash flow statement or the management discussion.[S1]
Why is it added back in the cash flow statement?
The cash flow statement starts from net income, which already has the expense taken off. Because no cash was paid, it is added back to reach cash from operations.
Each company's 10-K shows the add-back for its fiscal year:
- Nvidia, fiscal year ended Jan 25, 2026: $6,386 million.[S5]
- Meta, 2025: $20,427 million.[S7]
- Amazon, 2025: $19,467 million.[S8]
So cash from operations, and free cash flow built on it, are higher than if the same pay had been in cash.
Where does the tax cash show up?
When RSUs vest, many companies keep back some of the shares and pay the employee's tax in cash instead. This is called net share settlement.
US accounting puts that cash payment under financing activities, not operating activities.[S2]
Nvidia's 10-K says it withheld about 51 million shares, worth $7.9 billion, through net share settlements in fiscal 2026.[S5]
How do adjusted numbers treat it?
Many companies leave stock-based pay out of their non-GAAP ("adjusted") earnings. Practice differs from company to company.
- Tesla's 2025 non-GAAP net income added back $2,012 million of stock-based pay after tax. Its adjusted EBITDA added back $2,825 million before tax.[S9]
- Nvidia's non-GAAP measures no longer leave it out from the first quarter of fiscal 2027. Earlier periods were updated to match.[S6]
- Meta's Q3 2026 release lists three non-GAAP measures: revenue and advertising revenue excluding currency effects, and free cash flow. None is a profit figure.[S10]
Our entry on non-GAAP measures explains the SEC rules behind these figures.
How does diluted EPS count the extra shares?
Earnings per share (EPS) is net income divided by the shares. Basic EPS uses the average shares outstanding during the year.
Diluted EPS also counts shares that equity awards could still create. Nvidia works this out with the treasury stock method.[S5]
That method assumes awards are exercised and the money is used to buy back shares. The assumed money includes cost not yet recognised for future work.[S2]
Nvidia's fiscal 2026 note shows how it works:[S5]
In the filing · 10-K fiscal 2026, Note 4
Basic weighted average shares 24,359 million[S5]
In the filing · Same note
Dilutive impact of outstanding equity awards 155 million[S5]
In the filing · Same note
Net income per share: basic / diluted $4.93 / $4.90[S5]
Awards that would raise EPS are left out of the diluted count. For Nvidia that was 41 million shares in fiscal 2026.[S5]
What future pay is already granted?
Topic 718 notes show cost already granted but not yet expensed. Nvidia had $14.8 billion at Jan 25, 2026. It expects to recognise the RSU and performance-unit part over a weighted average of 2.3 years, and the ESPP part over 0.9 years.[S5]
Nvidia also had 1.3 billion shares available for future grants under its equity plans at that date.[S5]
Item 201(d) of Regulation S-K asks for an equity compensation plan table. It shows shares to be issued under outstanding awards and shares left for future grants.[S3]
In the proxy, the summary compensation table shows each top executive's stock and option awards. They are valued at grant date fair value under Topic 718.[S4] Our guide on how to read a proxy statement shows where it sits.
How does Cityfort show it?
Cityfort stock pages take stock-based pay from the cash flow statement. Where it is large, the page mentions it in the captions next to the profit figures.