If I’m understanding correctly, a company at any given time has a fixed number of shares that split the ownership of that company, thus if a CEO is paid with shares someone else must be giving up their shares.
In: Economics
The company can issue new shares with the approval of the board (and by extension, the approval of the shareholders). This is just like issuing new shares to raise capital.
Yes, this dilutes the shares of the existing shareholders, but this would be the same as if the company paid the CEO out of its bank account, which would decrease the company’s assets by that much and thereby make the company that much less valuable. In other words, either way it’s eating in the value of a share.
So it has to be reasonable, but most of the time the board is convinced that compensation is a worthwhile exchange.
Note this is not unique to CEOs, but the same goes when the company wants to award any employee equity, e.g., granting employees RSUs or ISOs as part of their compensation package.
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