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If you work for a large public company, it's a fun exercise to add up all the money the corporation has spent on dividends & stock buybacks for the past year (s

If you work for a large public company, it's a fun exercise to add up all the money the corporation has spent on dividends & stock buybacks for the past year (such info is publicly available) then divide it by the number of employees. You often end up with a truly staggering amount, on the order of hundreds of thousands of dollars per employee per year. Some might object to such extravagant handouts to people who (by a vast, vast majority) played no part in the creation of that wealth.

kgwgk 8y ago
Extravagant handouts to the people who own the company, you mean?
- yebyen 8y ago
  Yeah, to those shrewd investors... the lessors, you could call them! What say we split the profits, 50/50? Doesn't sound fair, huh... well, what number would you consider fair?
amitagrawal 8y ago
I wish it were that simple but I find your analysis highly flawed. The early employees, founders and investors risked a big chunk of their resources and hence played a huge part in the creation of the company and are all the beneficiaries of those buybacks assuming they stick around for that long.
graeme 8y ago
You have to step back a few links in the chain to see the error here. For example, let's say a private owner starts a company, hired employees, pays them the agreed wage, and makes a profit. The owner should get the profit, right? They didn't do all the work, but they directed things, and took the risk that their capital would be lost. Now, suppose you had the same situation, except the owner sold to a private shareholder. This private shareholder wouldn't seem to be in a different position. They risked their capital that the enterprise might succeed. What about a public IPO? Well, the investors are putting their capital at risk to sustain the enterprise. Still seems fair. The objection is that subsequent shareholders have done nothing. They haven't worked on the business, and they haven't injected capital. Instead the stock merely changed hands from the original owners. So, the idea is we don't pay these people, or we don't pay them very much. What are the options: 1. We pay out less to shareholders. But then, this would affect ALL shareholders, including the original owner who put capital in. 2. We reduce payments to shareholders who didn't put capital in. All very good, except this means that those who did put capital in can never sell at the real price. The share is worth more to a capital injector than to subsequent purchaser. So, these people would be more reluctant to invest capital in the first place, knowing the shares could not be adequately resold. 3. Cut payouts for everyone except employees. In this scenario, the business simply doesn't get created. There is no reward for the capital at risk. There's no way I can see to get the outcome you want without wrecking the whole system that creates the wealth in the first place.
- wdewind 8y ago
  > There's no way I can see to get the outcome you want without wrecking the whole system that creates the wealth in the first place. This really sums up the economic conversation in America these days (and FWIW I agree!).
- dv_dt 8y ago
  Capital should be rewarded, but it's rewarded as a winner-decide-all manner right now that is also wrecking the whole system.
- ABCLAW 8y ago
  >You have to step back a few links in the chain to see the error here. What error? He isn't indicating that the mechanics of capital equity valuation are wrong, but that the sheer size of the value extraction from employees which occurs in de-risked large entities far exceeds what most people would expect. You can have all of the conditions leading to wealth creation as in your post in a system where labour has far better leverage to capture a larger portion of their own value creation. The interesting knock-on effect is that reviews of inequality indicate that firm formation is actually amplified in situations where labour has that leverage, as workers are able to get more self-generated capital through labour to finance their own bootstrapped projects/businesses.
  - harryh 8y ago
    "sheer size of the value extraction from employees" It is incorrect to assert that the employees are creating all the value created by a company. Companies are not just people but also a lot of other things: Easy to see and measure things like equipment, facilities and bank account balances. Somewhat harder to quantify but still important things like business relationships, contracts, brands and reputation. Even more effervescent but still important things like corporate culture & values; the so called "DNA" of a company. All of this stuff matters a lot and exists mostly independent of the employees. It is owned (quite literally) by the stockholders so the value accrues to them.
    - 8y ago
JumpCrisscross 8y ago
> Some might object to such extravagant handouts to people who (by a vast, vast majority) played no part in the creation of that wealth Then join or start a partnership. In a partnership, all the capital works for the firm. When you make partner, you buy in. (If you can't afford it, you get a loan or don't make partner.) When you retire or die, the stock is bought back. Coöperatives are another example. Corporations aren't the only ownership structure. For private organizations that scale, however, they tend to win against partnerships and co-operatives.
analognoise 8y ago
Providing capital doesn't play a major part of wealth creation? Like it carries no risk and deserves no reward, and isn't the fundamental thing that allowed the wealth to be generated in the first place? Are you sure?
- justonepost 8y ago
  He's slowly re-inventing communism. Give him time.
testvox 8y ago
Didn't they play the most key role of all? They paid everyone who works at the company to do what they do.
gammateam 8y ago
> Some might object to such extravagant handouts to people who (by a vast, vast majority) played no part in the creation of that wealth. you realize this won't garner much sympathy on the Silicon Valley town crier since employees also have a significant $ value of shareholdings yes this is an outlier in every other industry that employs people for wages
- ahelwer 8y ago
  If you're working for a large public company, stock grants are dollar-denominated. Say you're given a sizeable stock bonus, $100k. How much of a benefit do you get from stock dividends & buybacks with that quantity of stock? A few thousand dollars per year, at most. Negligible compared to the per-employee dividend & stock buyback number.
  - gammateam 8y ago
    stock grants and stock bonuses are very different. you are conflating issues. lets talk about stock grants, yes, stock grants are dollar denominated and vest. If you get a $100K stock grant that vests over 4 years for a stock currently worth $10, then you have 10,000 shares. The stock goes up to $70 and you still have 10,000 shares, and some of that growth was from buy backs, then your $700,000 isn't negligible at all. I just described Square.
    - ahelwer 8y ago
      You can calculate approximately how much of that growth was from buybacks, because it is near the same as if the company had spent the money on dividends instead except the money was rolled into the stock price instead of disbursed. So again, not very much. Stock grants vs bonuses is irrelevant other than that you are forced to hold grants for longer. Also irrelevant is how much the price has appreciated due to other factors. Are you certain it isn't yourself who is conflating issues?
spacehome 8y ago
No it's not "often" that high. Here's the list of the top 20 highest earnings per employee per year: https://www.businessinsider.com/apple-facebook-alphabet-most-profitable-companies-per-employee-2017-12 https://www.businessinsider.com/apple-facebook-alphabet-most... Industrial Bank is #20 at $144k. That means that unless you work at one of the 20 companies on that list, your company is making less than $144k in earnings per employee. That profit is then taxed, and only a fraction of that is returned to shareholders, with the rest re-invested in the business. So there's no way it's often hundreds of thousands.
- ahelwer 8y ago
  Many corporations have used debt-financed stock buybacks.
  - kgwgk 8y ago
    At least those are not done through the exploitative appropriation of the surplus value produced by the worker.
    - ahelwer 8y ago
      Of course they are! The full debt will be repaid in time, with interest. Where does that money come from?
      - kgwgk 8y ago
        Sometimes the full debt is not repaid. In that case the money comes from the lenders and bond-holders and they never get it back. And the shareholders also lose everything in that scenario, of course.
      - longtermsec 8y ago
        The money for the interest payments comes from taxes!
  - spacehome 8y ago
justonepost 8y ago
That's capitalism, baby. He who controls the capital reaps the rewards.
justonepost 8y ago
Venture capital wouldn't exist if this weren't the case. Hell, hacker news wouldn't exist if this weren't the case.
WalterBright 8y ago
If you hire a contractor to prep your house so you can sell it at a higher price, is the contractor entitled to a percentage of that gain?

kgwgk 8y ago

Extravagant handouts to the people who own the company, you mean?

yebyen 8y ago
Yeah, to those shrewd investors... the lessors, you could call them! What say we split the profits, 50/50? Doesn't sound fair, huh... well, what number would you consider fair?

amitagrawal 8y ago

I wish it were that simple but I find your analysis highly flawed. The early employees, founders and investors risked a big chunk of their resources and hence played a huge part in the creation of the company and are all the beneficiaries of those buybacks assuming they stick around for that long.

graeme 8y ago

You have to step back a few links in the chain to see the error here. For example, let's say a private owner starts a company, hired employees, pays them the agreed wage, and makes a profit. The owner should get the profit, right? They didn't do all the work, but they directed things, and took the risk that their capital would be lost. Now, suppose you had the same situation, except the owner sold to a private shareholder. This private shareholder wouldn't seem to be in a different position. They risked their capital that the enterprise might succeed. What about a public IPO? Well, the investors are putting their capital at risk to sustain the enterprise. Still seems fair. The objection is that subsequent shareholders have done nothing. They haven't worked on the business, and they haven't injected capital. Instead the stock merely changed hands from the original owners. So, the idea is we don't pay these people, or we don't pay them very much. What are the options: 1. We pay out less to shareholders. But then, this would affect ALL shareholders, including the original owner who put capital in. 2. We reduce payments to shareholders who didn't put capital in. All very good, except this means that those who did put capital in can never sell at the real price. The share is worth more to a capital injector than to subsequent purchaser. So, these people would be more reluctant to invest capital in the first place, knowing the shares could not be adequately resold. 3. Cut payouts for everyone except employees. In this scenario, the business simply doesn't get created. There is no reward for the capital at risk. There's no way I can see to get the outcome you want without wrecking the whole system that creates the wealth in the first place.

wdewind 8y ago
> There's no way I can see to get the outcome you want without wrecking the whole system that creates the wealth in the first place. This really sums up the economic conversation in America these days (and FWIW I agree!).
dv_dt 8y ago
Capital should be rewarded, but it's rewarded as a winner-decide-all manner right now that is also wrecking the whole system.
ABCLAW 8y ago
>You have to step back a few links in the chain to see the error here. What error? He isn't indicating that the mechanics of capital equity valuation are wrong, but that the sheer size of the value extraction from employees which occurs in de-risked large entities far exceeds what most people would expect. You can have all of the conditions leading to wealth creation as in your post in a system where labour has far better leverage to capture a larger portion of their own value creation. The interesting knock-on effect is that reviews of inequality indicate that firm formation is actually amplified in situations where labour has that leverage, as workers are able to get more self-generated capital through labour to finance their own bootstrapped projects/businesses.
- harryh 8y ago
  "sheer size of the value extraction from employees" It is incorrect to assert that the employees are creating all the value created by a company. Companies are not just people but also a lot of other things: Easy to see and measure things like equipment, facilities and bank account balances. Somewhat harder to quantify but still important things like business relationships, contracts, brands and reputation. Even more effervescent but still important things like corporate culture & values; the so called "DNA" of a company. All of this stuff matters a lot and exists mostly independent of the employees. It is owned (quite literally) by the stockholders so the value accrues to them.
  - 8y ago

JumpCrisscross 8y ago

> Some might object to such extravagant handouts to people who (by a vast, vast majority) played no part in the creation of that wealth Then join or start a partnership. In a partnership, all the capital works for the firm. When you make partner, you buy in. (If you can't afford it, you get a loan or don't make partner.) When you retire or die, the stock is bought back. Coöperatives are another example. Corporations aren't the only ownership structure. For private organizations that scale, however, they tend to win against partnerships and co-operatives.

analognoise 8y ago

Providing capital doesn't play a major part of wealth creation? Like it carries no risk and deserves no reward, and isn't the fundamental thing that allowed the wealth to be generated in the first place? Are you sure?

justonepost 8y ago
He's slowly re-inventing communism. Give him time.

testvox 8y ago

Didn't they play the most key role of all? They paid everyone who works at the company to do what they do.

gammateam 8y ago

> Some might object to such extravagant handouts to people who (by a vast, vast majority) played no part in the creation of that wealth. you realize this won't garner much sympathy on the Silicon Valley town crier since employees also have a significant $ value of shareholdings yes this is an outlier in every other industry that employs people for wages

ahelwer 8y ago
If you're working for a large public company, stock grants are dollar-denominated. Say you're given a sizeable stock bonus, $100k. How much of a benefit do you get from stock dividends & buybacks with that quantity of stock? A few thousand dollars per year, at most. Negligible compared to the per-employee dividend & stock buyback number.
- gammateam 8y ago
  stock grants and stock bonuses are very different. you are conflating issues. lets talk about stock grants, yes, stock grants are dollar denominated and vest. If you get a $100K stock grant that vests over 4 years for a stock currently worth $10, then you have 10,000 shares. The stock goes up to $70 and you still have 10,000 shares, and some of that growth was from buy backs, then your $700,000 isn't negligible at all. I just described Square.
  - ahelwer 8y ago
    You can calculate approximately how much of that growth was from buybacks, because it is near the same as if the company had spent the money on dividends instead except the money was rolled into the stock price instead of disbursed. So again, not very much. Stock grants vs bonuses is irrelevant other than that you are forced to hold grants for longer. Also irrelevant is how much the price has appreciated due to other factors. Are you certain it isn't yourself who is conflating issues?

spacehome 8y ago

No it's not "often" that high. Here's the list of the top 20 highest earnings per employee per year: https://www.businessinsider.com/apple-facebook-alphabet-most-profitable-companies-per-employee-2017-12 https://www.businessinsider.com/apple-facebook-alphabet-most... Industrial Bank is #20 at $144k. That means that unless you work at one of the 20 companies on that list, your company is making less than $144k in earnings per employee. That profit is then taxed, and only a fraction of that is returned to shareholders, with the rest re-invested in the business. So there's no way it's often hundreds of thousands.

ahelwer 8y ago
Many corporations have used debt-financed stock buybacks.
- kgwgk 8y ago
  At least those are not done through the exploitative appropriation of the surplus value produced by the worker.
  - ahelwer 8y ago
    Of course they are! The full debt will be repaid in time, with interest. Where does that money come from?
    - kgwgk 8y ago
      Sometimes the full debt is not repaid. In that case the money comes from the lenders and bond-holders and they never get it back. And the shareholders also lose everything in that scenario, of course.
    - longtermsec 8y ago
      The money for the interest payments comes from taxes!
- spacehome 8y ago

justonepost 8y ago

That's capitalism, baby. He who controls the capital reaps the rewards.

justonepost 8y ago

Venture capital wouldn't exist if this weren't the case. Hell, hacker news wouldn't exist if this weren't the case.

WalterBright 8y ago

If you hire a contractor to prep your house so you can sell it at a higher price, is the contractor entitled to a percentage of that gain?