Stock compensation expense is the accounting recognition of the cost of providing employees with rights to acquire or own stock in their company. It is recorded as an expense when the stock is granted to employees, and is a simple entry in your business’ journal. Primarily, it’s used to record the grant date fair value of the stock options. This expense can also be seen as a non-cash expense because option holders do not pay for the stock grant with cash. Instead, they use only their time and expertise. The amount of stock compensation expense is based on the fair value of the grant as determined at the grant date. This expense removes value from the equity on the balance sheet but also increases retained earnings on the income statement.