Governance

Burn Rate

The rate at which a company grants shares from its equity plan relative to shares outstanding.

Burn rate measures how many shares a company grants under its equity incentive plan in a given year, expressed as a percentage of total shares outstanding. It is a dilution metric: a higher burn rate means shareholders’ existing ownership is being diluted faster by new equity awards.

Proxy advisory firms such as ISS apply industry-specific burn rate benchmarks when evaluating a company’s equity plan proposal, and a rate meaningfully above the benchmark for a company’s industry and size is one of the more common reasons an equity plan proposal draws an "against" recommendation.

Burn rate is usually reported as a single-year figure alongside a multi-year average, since a single unusually large grant year — a new-hire mega-grant, for instance — can distort a one-year snapshot in a way a trailing average smooths out.