Are shareholders competing with employees for a slice of the company’s pie?

When you’re debating investing in a company, it’s natural to focus on the big numbers – is revenue growing? Are profit margins healthy? While these metrics are important, they don’t tell you the whole story. There’s another important question worth asking: How much of the company do you actually own? It’s easy to overlook, but your stake in a business can quietly shrink over time, even while the company itself is thriving. The pie gets bigger, but somehow your slice gets smaller.

There are many reasons why companies issue shares. A fast-growing business might need to raise capital to fund their expansion – building factories, entering new markets, or expanding overseas. Technology companies often pay employees with stock rather than cash. This helps the company save cash today while also attracting top talent. When a company wants to make an acquisition, issuing shares can be an efficient way to finance the deal without draining their cash or piling on more debt. None of this is problematic – it is simply part and parcel of doing business.

But it does come at a cost. Every time new shares are created, existing shareholders get diluted. In other words, the company and its earnings are now divided amongst more shareholders, which means your piece of pie shrinks slightly.

What does share dilution mean?

Let’s look at two hypothetical companies – Company A and Company B. Both start with £1 billion in sales, £200 million of earnings, and 100 million outstanding shares (the total number of a company’s stock currently owned by all shareholders but excluding any shares the company bought back). Both grow their sales and profits at a steady 5% per year. On paper, these companies are identical. However, there is a crucial difference – Company A issues 3% more shares every year to fund its growth and compensate employees, while Company B buys back 3% of its shares annually.

At first glance, you might assume these companies will have similar fates. After all, they are growing at the same pace. But let’s fast forward ten years – we are long-term shareholders after all – and examine what’s happened.

Both companies have growth sales 5% annually from £1 billion to £1.63 billion, and earnings from £200 million to £326 million.

Company A, after issuing shares every year has grown its share count from 100 million to over 134 million, whereas Company B has reduced its share count from 100 million to less than 74 million over 10 years.

While both these companies started with an earnings per share (EPS) of £2, after ten years Company A has an EPS of £2.42 – a growth rate of only 1.9% per year. In contrast, after ten years, Company B has an EPS of £4.42 – representing an impressive 8.2% of EPS growth per year.

While both companies grew sales at the same rate, Company B grew EPS by 6.3% more per year than Company A. This means after ten years Company B’s EPS was 82% higher than Company A.

The contrast is striking. Both companies delivered exactly the same operational performance, yet the experience for shareholders diverged significantly. Company A’s earnings grew, but those earnings were spread out across far more shares, muting existing investors’ returns. Company B, on the other hand, concentrated those earnings among fewer shares, amplifying EPS growth.

How has share count impacted actual companies?

There’s a myriad of other influences that can affect a company’s fortunes and profitability, but how a company manages the share count can vastly affect the outcome for shareholders. It’s not just about the pie growing but making sure that your slice grows with it.

The impact is easy to overlook in theory, but the significance becomes much clearer when we look at real-world companies. The illustrate how changing share counts can shape shareholder outcomes, let’s examine two well-known tech giants: Salesforce and Apple.

Over the last 10 years Salesforce has growth its earnings from $5.4 billion in 2015, to a whopping $37.9 billion in 2025, an impressive annual growth rate of 21.6% - a truly astonishing figure.

EPS was $624 in 2015 and ballooned to $974 in 2025. While the annual growth rate of 4.6% is impressive, it is well below the sales growth the company achieved.

Consider that over that period, Salesforce has grown its share count from 650 million in 2015 to 974 million in 2025 – 48% more shares, representing a growth rate of 4% per year. Share-based compensation or using shares instead of cash for acquisitions is part of doing business, but it does come at a cost. Shareholders have experienced a far slower growth in EPS compared to the overall business growth – while the pie has grown substantially, the slice has shrunk for shareholders.

On the other side of the coin is Apple, one of the world’s most valuable companies. Apple grew sales from $183 billion in 2014 to $391 billion in 2024 – a 7.9% annual growth rate, and still impressive even though it is much less than what Salesforce achieved.

But over that period, Apple has allocated over $700 billion of capital to buying back their own shares and reducing their share count. The company had 23.5 billion outstanding shares in 2014, which have been brought down to 15.1 billion in 2024, representing a -36% reduction overall or -4.3% per year.

Apple’s EPS has grown from $1.61 in 2014 to $6.08 in 2024 – representing 278% growth over that period, or 14.2% growth annually. Apple’s EPS grew 6.3% more per year than Salesforce.

Apple’s significant share buybacks mean there are now fewer outstanding shares, so each remaining share represents a larger ownership stake in the company and a greater share of earnings. In other words, existing Apple shareholders have been rewarded not only with a much larger overall pie, but also a bigger slice.

What’s the real lesson for investors?

The lesson here isn’t that share issuance is inherently bad or that buybacks are always good. Companies at different stages require different strategies, and sometimes issuing shares is the right move to fuel growth or secure talented employees. But as a shareholder, it is essential to understand the trade-off. A company can report impressive headline growth while your actual stake in that success diminishes every year. The pie gets bigger, but your slice may not. This is why looking beyond revenue and profit growth matters. Share count reveals a lot about how management thinks about shareholders. And when you invest in a company, you’re not just betting on its ability to grow. You’re trusting management to grow your slice of it.