As the pioneer of the AI revolution, OpenAI has been at the forefront of innovation, particularly with the introduction of ChatGPT. However, behind the scenes, the company is engaged in a fiercely competitive and costly battle to retain its top talent. The expense of keeping its expert employees on board has become prohibitively expensive.

A recent report by The Information revealed that OpenAI’s stock-based compensation for its employees increased more than fivefold last year, reaching a staggering $4.4 billion. This figure surpasses the company’s total revenue for the year, which was $3.7 billion, accounting for a remarkable 119% of its total revenue.

This figure is unprecedented, even by Silicon Valley standards. To put it into perspective, Google’s stock compensation was approximately 16% of its revenue in the year leading up to its IPO, while Facebook’s was around 6%.

So, what is driving this trend? In essence, OpenAI is fighting to stay ahead in an intense talent war, with its main competitor, Meta, mounting a significant challenge. Mark Zuckerberg has been personally recruiting top AI researchers with substantial compensation packages, successfully luring several key individuals from OpenAI’s core teams. This has reportedly triggered a crisis within OpenAI, forcing the company to reassess its compensation strategy and promise more lucrative pay packages to prevent a mass exodus of talent.

Although stock-based compensation does not immediately deplete a company’s cash reserves, it poses a significant risk by diluting the value of shares held by investors. Every billion dollars in stock awarded to employees translates to a smaller share of the company owned by major backers, including Microsoft and other venture capital firms.

OpenAI is attempting to justify this strategy as a long-term vision. The company predicts that this significant expense will decrease to 45% of revenue this year and fall below 10% by 2030. Furthermore, OpenAI has reportedly discussed a future plan where its employees would collectively own around one-third of the restructured company, with Microsoft owning another third. The goal is to transform employees into deeply invested partners who have a substantial incentive to stay and contribute to the company’s growth.

However, the “Meta effect” is disrupting these projections. The aggressive poaching and subsequent pay increases mean that OpenAI’s costs are likely to remain exceptionally high.

The Stakes for OpenAI

This high-stakes financial strategy puts OpenAI in a vulnerable position. The company is already spending billions of dollars annually on computing power to run its models. Adding billions more in stock compensation puts immense pressure on the company to substantially increase revenue and find a path to profitability before its investors become cautious.

While Microsoft appears committed to supporting OpenAI in the long term, other investors may become increasingly uneasy about their ownership being diluted so heavily. This creates a sense of urgency for the company to deliver a substantial financial return to justify the cost.

OpenAI was founded with the mission of developing artificial general intelligence (AGI) that benefits humanity as a whole. This costly talent war, driven by capitalist competition, puts significant pressure on this founding ideal. It becomes increasingly challenging to prioritize safety and ethics when the company is spending billions to retain its top talent and stay ahead of the competition.

Ultimately, OpenAI is investing billions in the hope of ensuring it has the best talent to win the race to create the world’s first true superintelligence. If the company succeeds, the financial cost will seem negligible. However, if it fails or a competitor achieves this goal first, OpenAI will have spent itself into a significant financial hole for nothing.

OpenAI did not respond immediately to a request for comment.