In the context of equity compensation, the potential dilutive effect of equity grants on a company's outstanding equity over a certain time period, usually a fiscal year.

There are various methods of calculating a company's burn rate. A basic calculation divides the total shares issued under a company's equity compensation plan in a fiscal year by the company's total common shares outstanding.

When evaluating an equity compensation plan proposal by a public company, most proxy advisory firms, such as Institutional Shareholder Services Inc. (ISS), recommend a vote against a plan if the company's historical burn rate exceeds certain prescribed caps. ISS calculates a company's "gross" burn rate as the total options and shares of restricted stock and restricted stock units granted by a company (including performance shares once earned, but excluding cancelled or forfeited equity awards), divided by the company's weighted-average total common shares outstanding. ISS also applies a multiplier (based on a company's stock price volatility) to restricted stock and restricted stock units when calculating the burn rate, to better equate those full-value awards with options.