Stock-Based Compensation Expense

What is Stock-Based Compensation Expense?

Stock-based compensation expense is the cost of paying employees or executives with company shares or stock options instead of cash. Although it reduces net income on the income statement, it’s a non-cash expense, meaning no actual cash leaves the company.

That’s why, on the cash flow statement, this expense is added back to net income in the operating activities section to reflect the true cash generated by the business.