6 ms·

Sure, but the stock price would tank (note that the current multiple assumes growth), employees would leave due to poor compensation, and starts a downward spir

Sure, but the stock price would tank (note that the current multiple assumes growth), employees would leave due to poor compensation, and starts a downward spiral. I am not sure if that is called survival. And no, most businesses in the world do not survive that long. Lifetime of businesses are often much shorter than lifetime of humans. Even many of them that look like have survived may share the name only and are effectively new businesses.

8note 5y ago
You could compensate the employees with things other than stock
abdabab 5y ago
> employees would leave due to poor compensation With a gross profit of 100 billion dollars a year [1] they can easily outbid the market compensation if they want to and stay with current revenue. But again how many Jeff Deans can one company need before it calls itself The Man? [1] https://www.macrotrends.net/stocks/charts/GOOG/alphabet/gross-profit https://www.macrotrends.net/stocks/charts/GOOG/alphabet/gros...
- deleted 5y ago
  [deleted]
- lotsofpulp 5y ago
  Why would gross profit be the relevant metric here and not net profit?
  - abdabab 5y ago
    You’re right. 63 billion dollars of net profit per year is a better metric.
hadlock 5y ago
If the stock price went down, they would just pay employees in cash, which is a slightly less tax-advantaged solution.
- superdude12 5y ago
  How are RSUs tax advantaged?
  - SOLAR_FIELDS 5y ago
    The award is taxed at the same rate, but theoretically (in the States, at least) you can hold them for a year after they vest and only pay the much lower long term tax on the appreciation of their value. In order to easily compare apples to apples this assumes that in the alternative to getting RSU's that you would actually get compensated more income instead in proportion to the value increase of the company. An equivalent would probably be to compare a cash bonus that is directly tied to the value of the stock vs the equivalent gain in RSU. All else being equal, the RSU gain is more tax advantageous if you have held the RSU for a year or longer before liquidating the position.
    - lotsofpulp 5y ago
      That is not a tax advantage. It is simply paying long term capital gains tax rate on long term capital gains. Companies are not paying with RSUs because of a tax advantage, they are paying because it is cheaper than paying with cash.
      - SOLAR_FIELDS 5y ago
        While it's unclear whether grandparent was referring to tax advantages for the company vs. the individual, I'm not sure I understand your comment about lack of tax advantage in the context of individual awards. Scenario A: Company X gives me a sign-on bonus of $10,000 and an agreement to bonus me $100 * y%, where y is the increase in value of the company. Scenario B: Company X awards me $10,000 of RSU that vests after 1 year. Let's say I'm in the highest bracket, $523,601 or more in income. The tax rate for that bracket for 2021 is 37%. After 1 year, the stock price goes up 100%. In Scenario A, I have vested RSU's worth $20,000. If I sell $10,000 of that (the gains only), I pay short term capital gains equivalent to my tax bracket, or $3700. If I hold that stock for 1 year after vesting and the stock price stays exact same for the next year, I pay the long term rate of the highest bracket which is currently 20%, or $2,000. In Scenario B, I get a bonus of $10,000 just the same, but there is no situation where I'm not stuck with paying $3,700 on that $10,000 gain. In Scenario A, I can save almost 50% of the tax bill by holding it for a year.
nuerow 5y ago
> Sure, but the stock price would tank (note that the current multiple assumes growth), employees would leave due to poor compensation, and starts a downward spiral. This assertion presumes that it is impossible to propose any form of compensation that's enticing without involving stock. This is not only baseless but also flies in the face of reality, as other tech companies, including other FAANGs, barely offer any stock and still manage to attract top talent.
- gregorygoc 5y ago
  > This is not only baseless but also flies in the face of reality, as other tech companies, including other FAANGs, barely offer any stock and still manage to attract top talent. Which one?
  - jw_mc 5y ago
    Netflix is known for having all-cash offers.
    - saagarjha 5y ago
      Netflix is pretty much the only FAANG that does that. Every other large tech company has generous stock grants, and as you pass a couple years of experience your stock will generally be larger than your cash compensation.
      - Sebb767 5y ago
        > Netflix is pretty much the only FAANG that does that. Netflix is also 20% of FAANG companies, so that's not as lonely as it sounds.
        saagarjha 5y ago
        Right, but they're a strange company that just happens to be in FAANG. Pretty much every other large company, in the FAANG acronym or not, will give you equity.
caoilte 5y ago
They could achieve good multiples by paying dividends. The question is whether they're wasting as much money trying to grow as they are saving by keeping their profits offshore (and not paying tax on them). I don't know, but at some point the answer may become obvious.
- lotsofpulp 5y ago
  Owners do not want dividends. I do not want dividends from my tech stocks if I’m simply going to turn around and reinvest in them. That is just paying extra short term capital gains taxes when you do not have to.
  - sokoloff 5y ago
    Qualified dividends (which represent the vast majority of them) are taxed as long-term capital gains to avoid this concern.
    - deleted 5y ago
      [deleted]
    - lotsofpulp 5y ago
      True, but it does not seem like investors are clamoring for dividends either way. Personally, I would just take the dividend money and reinvest it so it’s all the same to me.
mbesto 5y ago
This is what people seem to forget. A company that doesn't grow for all intents and purposes is a dead company. Or in the M&A world we call it "distressed". It doesn't matter how profitable you are if you don't get grow there are serious implications - employee motivation, loss of talent, erosion of customer services, etc.
- discordance 5y ago
  I don't see how employee motivation, loss of talent, erosion of customer services are related to the need for unyielding year on year growth. There are companies out there, private ones, where their customers are happy, their employees are happy (most of the time) and their retention is high.
  - Lamad123 5y ago
    I hate how hn top threads usually degenerate into something totally unrelated to the original posts.
  - burntoutfire 5y ago
    Without growth, the only way to get promoted is to get a spot of some higher-up who left the company (or retired/died). Whereas, in growing companies, there are new senior/management positions created all the time, to account for the growth - so, getting promoted is easier. Ambitious, hard working people like promotions, so they gravitate towards growing companies and not stale companies.
    - crgwbr 5y ago
      Ambition and hard work are hardly the same thing. Many people work hard at their job, are paid a good wage, and are satisfied with their job, rather than constantly seeking a promotion. Constant promotion seeking isn’t admirable, it’s just greed.
    - DubiousPusher 5y ago
      > Ambitious, hard working people like promotions Ambitious maybe (though that's nearly the definition of ambitious). Hardworking, not necessarily. I know a cement guy that you have never in your life worked a harder day than who has never received a promotion nor even sought one.

8note 5y ago

You could compensate the employees with things other than stock

abdabab 5y ago

> employees would leave due to poor compensation With a gross profit of 100 billion dollars a year [1] they can easily outbid the market compensation if they want to and stay with current revenue. But again how many Jeff Deans can one company need before it calls itself The Man? [1] https://www.macrotrends.net/stocks/charts/GOOG/alphabet/gross-profit https://www.macrotrends.net/stocks/charts/GOOG/alphabet/gros...

deleted 5y ago
[deleted]
lotsofpulp 5y ago
Why would gross profit be the relevant metric here and not net profit?
- abdabab 5y ago
  You’re right. 63 billion dollars of net profit per year is a better metric.

hadlock 5y ago

If the stock price went down, they would just pay employees in cash, which is a slightly less tax-advantaged solution.

superdude12 5y ago
How are RSUs tax advantaged?
- SOLAR_FIELDS 5y ago
  The award is taxed at the same rate, but theoretically (in the States, at least) you can hold them for a year after they vest and only pay the much lower long term tax on the appreciation of their value. In order to easily compare apples to apples this assumes that in the alternative to getting RSU's that you would actually get compensated more income instead in proportion to the value increase of the company. An equivalent would probably be to compare a cash bonus that is directly tied to the value of the stock vs the equivalent gain in RSU. All else being equal, the RSU gain is more tax advantageous if you have held the RSU for a year or longer before liquidating the position.
  - lotsofpulp 5y ago
    That is not a tax advantage. It is simply paying long term capital gains tax rate on long term capital gains. Companies are not paying with RSUs because of a tax advantage, they are paying because it is cheaper than paying with cash.
    - SOLAR_FIELDS 5y ago
      While it's unclear whether grandparent was referring to tax advantages for the company vs. the individual, I'm not sure I understand your comment about lack of tax advantage in the context of individual awards. Scenario A: Company X gives me a sign-on bonus of $10,000 and an agreement to bonus me $100 * y%, where y is the increase in value of the company. Scenario B: Company X awards me $10,000 of RSU that vests after 1 year. Let's say I'm in the highest bracket, $523,601 or more in income. The tax rate for that bracket for 2021 is 37%. After 1 year, the stock price goes up 100%. In Scenario A, I have vested RSU's worth $20,000. If I sell $10,000 of that (the gains only), I pay short term capital gains equivalent to my tax bracket, or $3700. If I hold that stock for 1 year after vesting and the stock price stays exact same for the next year, I pay the long term rate of the highest bracket which is currently 20%, or $2,000. In Scenario B, I get a bonus of $10,000 just the same, but there is no situation where I'm not stuck with paying $3,700 on that $10,000 gain. In Scenario A, I can save almost 50% of the tax bill by holding it for a year.

nuerow 5y ago

> Sure, but the stock price would tank (note that the current multiple assumes growth), employees would leave due to poor compensation, and starts a downward spiral. This assertion presumes that it is impossible to propose any form of compensation that's enticing without involving stock. This is not only baseless but also flies in the face of reality, as other tech companies, including other FAANGs, barely offer any stock and still manage to attract top talent.

gregorygoc 5y ago
> This is not only baseless but also flies in the face of reality, as other tech companies, including other FAANGs, barely offer any stock and still manage to attract top talent. Which one?
- jw_mc 5y ago
  Netflix is known for having all-cash offers.
  - saagarjha 5y ago
    Netflix is pretty much the only FAANG that does that. Every other large tech company has generous stock grants, and as you pass a couple years of experience your stock will generally be larger than your cash compensation.
    - Sebb767 5y ago
      > Netflix is pretty much the only FAANG that does that. Netflix is also 20% of FAANG companies, so that's not as lonely as it sounds.
      - saagarjha 5y ago
        Right, but they're a strange company that just happens to be in FAANG. Pretty much every other large company, in the FAANG acronym or not, will give you equity.

caoilte 5y ago

They could achieve good multiples by paying dividends. The question is whether they're wasting as much money trying to grow as they are saving by keeping their profits offshore (and not paying tax on them). I don't know, but at some point the answer may become obvious.

lotsofpulp 5y ago
Owners do not want dividends. I do not want dividends from my tech stocks if I’m simply going to turn around and reinvest in them. That is just paying extra short term capital gains taxes when you do not have to.
- sokoloff 5y ago
  Qualified dividends (which represent the vast majority of them) are taxed as long-term capital gains to avoid this concern.
  - deleted 5y ago
    [deleted]
  - lotsofpulp 5y ago
    True, but it does not seem like investors are clamoring for dividends either way. Personally, I would just take the dividend money and reinvest it so it’s all the same to me.

mbesto 5y ago

This is what people seem to forget. A company that doesn't grow for all intents and purposes is a dead company. Or in the M&A world we call it "distressed". It doesn't matter how profitable you are if you don't get grow there are serious implications - employee motivation, loss of talent, erosion of customer services, etc.

discordance 5y ago
I don't see how employee motivation, loss of talent, erosion of customer services are related to the need for unyielding year on year growth. There are companies out there, private ones, where their customers are happy, their employees are happy (most of the time) and their retention is high.
- Lamad123 5y ago
  I hate how hn top threads usually degenerate into something totally unrelated to the original posts.
- burntoutfire 5y ago
  Without growth, the only way to get promoted is to get a spot of some higher-up who left the company (or retired/died). Whereas, in growing companies, there are new senior/management positions created all the time, to account for the growth - so, getting promoted is easier. Ambitious, hard working people like promotions, so they gravitate towards growing companies and not stale companies.
  - crgwbr 5y ago
    Ambition and hard work are hardly the same thing. Many people work hard at their job, are paid a good wage, and are satisfied with their job, rather than constantly seeking a promotion. Constant promotion seeking isn’t admirable, it’s just greed.
  - DubiousPusher 5y ago
    > Ambitious, hard working people like promotions Ambitious maybe (though that's nearly the definition of ambitious). Hardworking, not necessarily. I know a cement guy that you have never in your life worked a harder day than who has never received a promotion nor even sought one.