In FY22, Workday (WDAY), a maker of financial and human capital management software, granted 400,000 performance based restricted stock units (PRSUs) to employees with titles below the level of Vice President. The PRSUs contained both service and performance conditions related to company goals. In the quarter ending April 30, 2022, Workday recognized $16 million in compensation costs related to the PRSUs.

In its latest quarterly filing, Workday inserted new language disclosing it will not continue its company-wide PRSU program in FY23.

Later in the filing when discussing GAAP operating margin, Workday blamed a 180 basis point decline, in part, on the rollout of a new performance-based cash bonus program. The cash bonus program cost Workday $32 million in the quarter and unlike stock based compensation (SBC)— a non-cash expense— reduced the company’s operating cash flow.

In April, we published an Exclusive Report for DuDil+ subscribers detailing the potential ramifications of Shopify’s (SHOP) new employee compensation plan that allows workers to choose between equity and cash. If tech firms are forced to follow Shopify’s lead and employees choose cash, we warned operating cash flows would plunge and the entire sector will be revalued significantly lower even after the recent sell-off.

Workday was one of twenty tech firms we highlighted.

With SBC the equivalent of 21.4% of 2021 revenue, Workday’s 2021 operating cash flow would fall 65.6% to $550 million if SBC was paid in cash. Under this scenario, our model indicates Workday is worth just $23.43 a share, or 89.6% less than when we published the report. This scenario assumes all SBC is converted to cash compensation.

If we assume just a quarter of Workday’s employees opt for cash if offered— meaning we add back 75% of estimated SBC— our model indicates Workday is worth $203.22, or 23% less than our calculation of the company’s intrinsic value and 12% less than where it traded when we published the report.

Workday still relies heavily on equity for employee compensation— SBC was 21.7% of revenue in the latest quarter. In explaining the increase in the quarter’s GAAP operating expenses, Workday cited, among other items, “additional” stock-based compensation. It’s not clear if the extra equity was being used to retain employees whose equity is underwater following the tech sector sell-off as other firms like Zoom have recently.

Workday’s cash bonus expense in the quarter was 10.28% of SBC. But even relatively small cash outflows can have significant downside impact to tech company valuations. It’s still too soon to say the SBC dominos are starting to fall. But as the second major tech firm to increase its reliance on cash to compensate employees, Workday may be at the forefront of a shift most tech firms can’t afford and others may come to regret.