Final answer:
Buying back stock as treasury stock can benefit a company by providing a means to reward employees with stock-based compensation, managing dilution from equity awards, and potentially increasing earnings per share, which can benefit employees holding stock options.
Step-by-step explanation:
When a company buys back its stock as treasury stock, it can help in relation to compensation in several ways. One significant benefit of stock buybacks is the potential to reward employees through stock-based compensation. This can align their interests with those of the shareholders by making a portion of their earnings directly tied to the company's performance.
Moreover, treasury shares can be used to manage dilution. When stock options or other equity awards are granted to employees, the total number of outstanding shares increases, which can dilute the value of existing shares. By holding treasury stock, a company has the flexibility to reissue these shares for employee compensation, which helps to mitigate the dilutive impact of stock-based employee compensation plans.
Additionally, stock buybacks can lead to an increase in the earnings per share (EPS), as there are fewer shares outstanding, potentially leading to stock price appreciation. Higher stock prices benefit employees holding stock options or other equity compensation, providing them with an incentive to enhance their performance and contribute to the company's success.