Background: Xero is the Kiwi-born accounting software giant best known for helping small businesses manage invoicing, payroll, bookkeeping, and tax. Founded in 2006, it has grown into one of the ASX's most valuable tech companies. But concerns AI could disrupt the accounting software industry has caused its share price to plunge more than 57% over the past year.

What happened: Xero is reporting a 31% jump in revenue to NZ$2.8 billion in its full-year results. But, despite the strong top-line growth, after-tax profit fell 27% to NZ$167 million. The main culprit? Melio, the US bill payment platform Xero acquired for $3.9 billion, which is still operating at a loss.

What else: The results highlight the pressure Xero is facing as it tries to expand aggressively in the US while also navigating fears that AI could reshape accounting software entirely. And CEO Sukhinder Singh Cassidy's potential pay package was slashed from $23 million to around $6 million because of the company's share price performance.  

What's the key learning?

💡 When a CEO's pay is largely stock based, they make most of their money if the share price rises above the option's exercise price. In Xero's case, those options were granted in December 2024 at around $171 per share - meaning the CEO only profits if the stock climbs above that level.

💡 Stock options are designed to align executives with shareholders, but they can also encourage bigger risks. If shares rise, executives can make huge amounts of money. If shares fall, those options can become effectively worthless or "underwater," which is where Xero currently sits with its share price around $75.

💡 When this strategy works, the rewards can be huge. Lovisa's CEO received an options package worth up to $68 million after joining in 2021. As Lovisa shares surged nearly 280% under his leadership, those options eventually delivered him close to $40 million in a single year. For Xero though, hitting that $171 share price still looks pretty unlikley short term.