Stock Dilution

Stock dilution describes the effect to existing shareholders of bringing new common shareholders into a corporation. This can occur under a variety of circumstances including secondary offerings, conversion of other securities (such as preferred shares or convertible bonds), and when employees exercise stock options. Dilution can influence voting control and other important elements that can impact the value of shares. Phantom stock and its variations typically avoid stock dilution because the participating employees receive potential compensation as opposed to actual stock.