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Why can’t employee compensation also come from diluting Wall Street? Why do they vast majority of those benefits go to top executives?

missedthecue 6y ago
Performance and incentive alignment. John Doe stacking pallets at the Coca Cola factory really won't produce much better top or bottom line results for the business if you offer him a stock bonus. His forklift only drives so fast, and he plays a very minute part in the direction of the business. The CEO on the other hand can have a huge impact, and it's why shareholders choose and vote on certain incentives and bonuses. But more importantly, in other businesses this type of comp is certainly offered. If you work in a small startup in any position, you probably get stock options, because your performance on a 10 or 20 person team probably does have real noticeable and measurable impact on the business's success.
- alpha_squared 6y ago
  > John Doe stacking pallets at the Coca Cola factory really won't produce much better top or bottom line results for the business if you offer him a stock bonus. His forklift only drives so fast. A counter-perspective would be that John Doe becomes incentivized to improve efficiency and innovate in the process. People are not machines or primitive animals. Humans are capable of creative problem-solving. Note: stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back.
  - djrogers 6y ago
    > Note: stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back. While pedantically true, in reality this is generally not the case. As long as you are still employed by the company that granted you the options, you do not have to exercise them ('invest') until you wish to sell them. What this means in practice is that nary a single dollar ever comes out of your pocket.
    - alpha_squared 6y ago
      > As long as you are still employed by the company that granted you the options I think that's the key, which makes them fundamentally different. So, in the _very_ narrow scenario in which you happen to join a company that will IPO and that you're there from pre-IPO until post-IPO, yes -- they're nearly the same; you really just benefit from the difference of the strike price and public price. If you've spent time at the company, vested your options, and want to leave for just about any reason, it's nothing at all the same. I posit that a vast majority of startup departures fall under the latter scenario.
  - drexlspivey 6y ago
    > Note: stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back. Stock options and shares are pretty much equivalent. If the stock price goes up the option goes up (by a ratio). You don’t have to put your own money in, i.e you get 100 options every quarter, you sell 50 of them to get the money to exercise the other 50.
    - alpha_squared 6y ago
      > i.e you get 100 options every quarter, you sell 50 of them to get the money to exercise the other 50. And lose the opportunity at longer-term gains for the ability to afford the short-term cost. They're really not equivalent at all. I know they're billed that way, but there are very real reasons startups forgo IPO for so long and remain on the options track in the meantime. Startups can offer stocks and often choose not to.
  - pdonis 6y ago
    > A counter-perspective would be that John Doe becomes incentivized to improve efficiency and innovate in the process. But the best-case percentage improvement in the overall company bottom line due to his innovations as a fork lift driver is still very, very small. To make it bigger, John Doe needs to stop being a fork lift driver and move to some other position with more leverage. And a person who really does have the ability to "improve efficiency and innovate" enough to make investors notice is probably better off quitting their current job and starting a startup. > stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back. My experience is that virtually all employees of large corporations who get stock options exercise them for direct cash, meaning they never actually own the stock; they "buy" it and then "sell" it immediately and take the cash (in practice whatever financial institution is running the company's stock option program does all this automatically and just sends the employee a check and a 1099 form for when they file their taxes). So virtually no employees actually take the opportunity to invest in the company. They just take the additional immediate income.
    - po8crg 5y ago
      >But the best-case percentage improvement in the overall company bottom line due to his innovations as a fork lift driver is still very, very small Depends on whether you count sharing his "this is a better way to use a fork-lift" around the company as best-practice as being due to his innovation or due to the manager who made it best practice. If you count that as his innovation, then it isn't small if there are a lot of other people doing his job. If Amazon could use fork-lifts in their warehouses 10% more efficiently, they'd save an enormous amount of money.
  - deleted 6y ago
    [deleted]
  - jjav 6y ago
    > Note: stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back. As a technicality that's true, but irrelevant in practice. Employees receiving options are nearly always going to do a same day sale where the option is excercised and immediately sold and you get the difference. No need to put any money in.
- daemin 6y ago
  But why not give them stock options as well? Why shouldn't all the people employed by the company share in its success? Even if it's the CEO's decision which determines the direction the company will go, it's all the people implementing that plan that actually cause the company to make money and succeed.
  - WalterBright 6y ago
    A lot of companies do. Microsoft has generated 20,000+ millionaires or more from its employees.
  - lanstin 6y ago
    And it's not like a top down plan is the key. Having all the people in the company feel interested in and empowered to fix problems they see is the key to a successful organization these day. A genuine commitment to "people are valuable" is key to getting people's interest in fixing problems.
- WalterBright 6y ago
  Another example is salesmen. They get paid mostly on commission. Their sales are good, they take home $$. If they sell less, they take home less.
aerosmile 6y ago
The benefits should go to whoever is responsible for the success of the company. This obviously opens up a political can of worms: the Left will say the CEO can't get anything done without the workers, the Right will say the workers can't get organized without the CEO (eg: what was Apple doing before Steve Jobs came back?). The workers can obviously leave and seek employment elsewhere. So can the CEO. For better or worse, the data presented in the parent post indicate that the market seems to be increasingly siding with the CEO-side of the above argument. I am not really sure that there's a simple regulatory move that would negate that (eg: you can cap salaries, but CEOs make most of their money from stocks. You might be able to cap how much stock a hired CEO can own, but most of the wealthiest people like Bezos and Zuck are founders).
- coldtea 6y ago
  >The benefits should go to whoever is responsible for the success of the company. This obviously opens up a political can of worms: the Left will say the CEO can't get anything done without the workers, the Right will say the workers can't get organized without the CEO And a pragmatism can say that all kinds of CEOs have driven companies to the ground, reducing their valuation even 1/10 what it was, and destroying their market share, and walked away just fine, with golden parachutes and even bonuses... CEOs get more because CEOs get to determine what they get (and the board members and execs rub each other's back when it comes to their collective advantages). It has little to do with performance and "whoever is responsible for the success of the company".
  - tjs8rj 6y ago
    A sharper metric: it tends to do with whoever is responsible for the success of the company at the least cost to shareholders. Imagine a company starting out. If they need you to join or they fail, and they can get you for 1% of the company, that founder is rewarded incredibly for securing you with very minor cost to the company, making them rich and you not, even if you are responsible for the success of the company. The reason being: if you’re so integral why didn’t you start your own company and keep all the equity? Why didn’t you bargain for more? Capitalism doesn’t make any prescriptions about what should happen, it’s just a system where individuals make consensual transactions and the chips fall where they do. In the above scenario, whether the founder “deserved” to be rich or not doesn’t matter, because you “made” them rich with your consensual transaction. As long as we are all free to be the founders or the employees, I don’t see why there should be some moral issue there. If your effort is worth more to others, either you need to haggle harder, start your own company, or you’re lying to yourself. Everyone is a stock in capitalism, that’s all that is true. Everyone sets the value of each other’s labor and capital. If your stock isn’t doing so hot it’s because others aren’t buying it.
Aunche 6y ago
A lot of employee compensation does come from diluting Wall Street. Until recently, Tesla was operating at a loss. During that time the workers were paid by diluting equity.
known 6y ago
"Heads I Win; Tails You Lose" --Majority Top Executives

missedthecue 6y ago

Performance and incentive alignment. John Doe stacking pallets at the Coca Cola factory really won't produce much better top or bottom line results for the business if you offer him a stock bonus. His forklift only drives so fast, and he plays a very minute part in the direction of the business. The CEO on the other hand can have a huge impact, and it's why shareholders choose and vote on certain incentives and bonuses. But more importantly, in other businesses this type of comp is certainly offered. If you work in a small startup in any position, you probably get stock options, because your performance on a 10 or 20 person team probably does have real noticeable and measurable impact on the business's success.

alpha_squared 6y ago
> John Doe stacking pallets at the Coca Cola factory really won't produce much better top or bottom line results for the business if you offer him a stock bonus. His forklift only drives so fast. A counter-perspective would be that John Doe becomes incentivized to improve efficiency and innovate in the process. People are not machines or primitive animals. Humans are capable of creative problem-solving. Note: stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back.
- djrogers 6y ago
  > Note: stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back. While pedantically true, in reality this is generally not the case. As long as you are still employed by the company that granted you the options, you do not have to exercise them ('invest') until you wish to sell them. What this means in practice is that nary a single dollar ever comes out of your pocket.
  - alpha_squared 6y ago
    > As long as you are still employed by the company that granted you the options I think that's the key, which makes them fundamentally different. So, in the _very_ narrow scenario in which you happen to join a company that will IPO and that you're there from pre-IPO until post-IPO, yes -- they're nearly the same; you really just benefit from the difference of the strike price and public price. If you've spent time at the company, vested your options, and want to leave for just about any reason, it's nothing at all the same. I posit that a vast majority of startup departures fall under the latter scenario.
- drexlspivey 6y ago
  > Note: stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back. Stock options and shares are pretty much equivalent. If the stock price goes up the option goes up (by a ratio). You don’t have to put your own money in, i.e you get 100 options every quarter, you sell 50 of them to get the money to exercise the other 50.
  - alpha_squared 6y ago
    > i.e you get 100 options every quarter, you sell 50 of them to get the money to exercise the other 50. And lose the opportunity at longer-term gains for the ability to afford the short-term cost. They're really not equivalent at all. I know they're billed that way, but there are very real reasons startups forgo IPO for so long and remain on the options track in the meantime. Startups can offer stocks and often choose not to.
- pdonis 6y ago
  > A counter-perspective would be that John Doe becomes incentivized to improve efficiency and innovate in the process. But the best-case percentage improvement in the overall company bottom line due to his innovations as a fork lift driver is still very, very small. To make it bigger, John Doe needs to stop being a fork lift driver and move to some other position with more leverage. And a person who really does have the ability to "improve efficiency and innovate" enough to make investors notice is probably better off quitting their current job and starting a startup. > stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back. My experience is that virtually all employees of large corporations who get stock options exercise them for direct cash, meaning they never actually own the stock; they "buy" it and then "sell" it immediately and take the cash (in practice whatever financial institution is running the company's stock option program does all this automatically and just sends the employee a check and a 1099 form for when they file their taxes). So virtually no employees actually take the opportunity to invest in the company. They just take the additional immediate income.
  - po8crg 5y ago
    >But the best-case percentage improvement in the overall company bottom line due to his innovations as a fork lift driver is still very, very small Depends on whether you count sharing his "this is a better way to use a fork-lift" around the company as best-practice as being due to his innovation or due to the manager who made it best practice. If you count that as his innovation, then it isn't small if there are a lot of other people doing his job. If Amazon could use fork-lifts in their warehouses 10% more efficiently, they'd save an enormous amount of money.
- deleted 6y ago
  [deleted]
- jjav 6y ago
  > Note: stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back. As a technicality that's true, but irrelevant in practice. Employees receiving options are nearly always going to do a same day sale where the option is excercised and immediately sold and you get the difference. No need to put any money in.
daemin 6y ago
But why not give them stock options as well? Why shouldn't all the people employed by the company share in its success? Even if it's the CEO's decision which determines the direction the company will go, it's all the people implementing that plan that actually cause the company to make money and succeed.
- WalterBright 6y ago
  A lot of companies do. Microsoft has generated 20,000+ millionaires or more from its employees.
- lanstin 6y ago
  And it's not like a top down plan is the key. Having all the people in the company feel interested in and empowered to fix problems they see is the key to a successful organization these day. A genuine commitment to "people are valuable" is key to getting people's interest in fixing problems.
WalterBright 6y ago
Another example is salesmen. They get paid mostly on commission. Their sales are good, they take home $$. If they sell less, they take home less.

aerosmile 6y ago

The benefits should go to whoever is responsible for the success of the company. This obviously opens up a political can of worms: the Left will say the CEO can't get anything done without the workers, the Right will say the workers can't get organized without the CEO (eg: what was Apple doing before Steve Jobs came back?). The workers can obviously leave and seek employment elsewhere. So can the CEO. For better or worse, the data presented in the parent post indicate that the market seems to be increasingly siding with the CEO-side of the above argument. I am not really sure that there's a simple regulatory move that would negate that (eg: you can cap salaries, but CEOs make most of their money from stocks. You might be able to cap how much stock a hired CEO can own, but most of the wealthiest people like Bezos and Zuck are founders).

coldtea 6y ago
>The benefits should go to whoever is responsible for the success of the company. This obviously opens up a political can of worms: the Left will say the CEO can't get anything done without the workers, the Right will say the workers can't get organized without the CEO And a pragmatism can say that all kinds of CEOs have driven companies to the ground, reducing their valuation even 1/10 what it was, and destroying their market share, and walked away just fine, with golden parachutes and even bonuses... CEOs get more because CEOs get to determine what they get (and the board members and execs rub each other's back when it comes to their collective advantages). It has little to do with performance and "whoever is responsible for the success of the company".
- tjs8rj 6y ago
  A sharper metric: it tends to do with whoever is responsible for the success of the company at the least cost to shareholders. Imagine a company starting out. If they need you to join or they fail, and they can get you for 1% of the company, that founder is rewarded incredibly for securing you with very minor cost to the company, making them rich and you not, even if you are responsible for the success of the company. The reason being: if you’re so integral why didn’t you start your own company and keep all the equity? Why didn’t you bargain for more? Capitalism doesn’t make any prescriptions about what should happen, it’s just a system where individuals make consensual transactions and the chips fall where they do. In the above scenario, whether the founder “deserved” to be rich or not doesn’t matter, because you “made” them rich with your consensual transaction. As long as we are all free to be the founders or the employees, I don’t see why there should be some moral issue there. If your effort is worth more to others, either you need to haggle harder, start your own company, or you’re lying to yourself. Everyone is a stock in capitalism, that’s all that is true. Everyone sets the value of each other’s labor and capital. If your stock isn’t doing so hot it’s because others aren’t buying it.

Aunche 6y ago

A lot of employee compensation does come from diluting Wall Street. Until recently, Tesla was operating at a loss. During that time the workers were paid by diluting equity.

known 6y ago

"Heads I Win; Tails You Lose" --Majority Top Executives