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> The moral of the story is that people with analyst mindsets play an essential role in our economy, but sometimes giving those people power over large organiza

> The moral of the story is that people with analyst mindsets play an essential role in our economy, but sometimes giving those people power over large organizations can have disastrous consequences. I'm gonna cosplay an "analyst mindset": 1. Need to measure costs and benefits of slashing benefits/pay. 2. A benefit-- slashing benefits/pay allows us to hit some obvious financial goal 3. A cost-- Uh oh, I don't yet know how to reliably measure any of the costs. 4. Good analysts don't take action without measuring. 5. I'm a good analyst. Conclusion: I cannot take the action of slashing benefits/pay The only way to make it work is to add a step "3b: cherry pick metrics for the costs of slashing benefits/pay such that the phony metrics justify the decision management already wants to make of slashing benefits/pay." But now we've shifted from "analyst mentality" to "the mindset of the little Beetle-like bureaucrats described by George Orwell in 1984."

andrei_says_ 5y ago
If you are a good analyst with a bonus tied to quarterly profits increase, can you be still a good analyst? Do you sacrifice your own monetary benefit to save a company? But then what about your family? I don’t think analysts are not smart enough or not caring enough. But institutionalized greed corrupts the integrity of everyone.
- jscode 5y ago
  Incentives matter and PEGs want companies to grow significantly over the life of their investment. The biggest reward comes from the future sale after you’ve increased the enterprise value 10x. I’m sure that people have made poor decisions for short-term gains, but the real issue is giving immense power to someone who has never actually had to build teams, ship products, or go the extra mile to make customers happy. Being “smart” doesn’t mean you always make good decisions. Some of the most successful entrepreneurs I know aren’t particularly book smart. In fact, much of their success could be attributed to the fact that they just didn’t quit when any other reasonable/normal person would have thrown in the towel.
  - erosenbe0 5y ago
    Ehh some PEGs do not care about long-term. Often they want to do anything that can get them some lump sum dividends and bonus payouts. Cost cutting combined with a recapitalization cookbook, selling assets like real-estate, and then using the proceeds and borrowed cash for themselves. Terminal price won't matter much due to either the initial windfall or because someone else will be holding enough of the bag after recap.
jacobr1 5y ago
Having dealt with 2 PE exists, rarely is the proposal something as upfront and silly as slash everyones pay. That probably does happen for a company being restructured in the red, but the more subtle actions tend to be things like: * Comp bands for are now targeting p50 averages rather than p75 or top of market. So you can't close new hires that are going competitors. And you can't give raises to your top performers * The health benefits are less generous when renegotiated for the following year * T&E that would have been approved - granted some maybe that shouldn't - but importantly some that should have for top-sales people, are no longer approvable. So your top sales people leave. Or similarly the accelerators or other measures are changed, that might look good on paper but rub top sales people the wrong way. * Head-count isn't replaced, so teams have to take on more work * Perks like conference attendance or hardware upgrades, which arguable aren't perks but investments in your team's productivity, are cut/limited
- jscode 5y ago
  >> Having dealt with 2 PE exists, rarely is the proposal something as upfront and silly as slash everyones pay. Agreed, but a gradual erosion can occur over the course of several years. PEGs and the operating company's management team have massive incentives to hit their growth metrics. If decreasing 401K contributions helps management hit their EBITDA target, many would argue that they should do exactly that. However, the impact of these decisions accumulates over time and can eventually derail a company's performance.
  - TheOtherHobbes 5y ago
    The reality is that this kind of stupidity is built into accounting systems. It's not even the people with the spreadsheets. They're doing what they've been taught to do. It just happens to be completely wrong-headed - if you're interested in tangible long term growth and not quarterly plunder which moves money around without seeding genuine real value. Which is why companies can "grow" in accounting terms while actually being hollowed out as going concerns with a future. Likewise with the planetary economy, which appears to be growing financially while in ecological terms it's almost literally eating its own seed corn. A better approach needs a revolution in accounting. Current accounting practices are built on so many false assumptions they cannot possibly produce lasting long term opportunity, except for a tiny minority of exceptionally and unhealthily privileged people.
serverlessmom 5y ago
I definitely agree with you. I would further argue that the "analyst mentality" has become so engrossed in the foundation of capitalism(and always has been, really) that we see companies across many industries closing down due to the "worker shortage". When in reality the CEO's of the companies complaining the loudest that "no one wants to work" have decided that paying living wages in a deeply competitive job market is less doable than letting the company totally stagnate and dissolve due to lack of people willing to work hard for pennies.
- pjmorris 5y ago
  I've long joked that Excel will be the downfall of western civilization, but it's less funny every year.
  - bb88 5y ago
    You either like Paul Krugman or you hate him but there's no denying that excel bugs influenced economic policy. https://www.nytimes.com/2013/04/19/opinion/krugman-the-excel-depression.html https://www.nytimes.com/2013/04/19/opinion/krugman-the-excel...
- jbay808 5y ago
  The CEOs whose own compensation has been skyrocketing because that's just the market rate for talent, right?
alecbz 5y ago
I think the key that leads to 3b is that costs are hard to measure. I.e., I think it's less that the PEG are coming into it with the idea that they want to cut and are cherry picking for that, it's that they will happily do whatever the easily available data tells them is right, ignoring or handwaving the harder to get data.

andrei_says_ 5y ago

If you are a good analyst with a bonus tied to quarterly profits increase, can you be still a good analyst? Do you sacrifice your own monetary benefit to save a company? But then what about your family? I don’t think analysts are not smart enough or not caring enough. But institutionalized greed corrupts the integrity of everyone.

jscode 5y ago
Incentives matter and PEGs want companies to grow significantly over the life of their investment. The biggest reward comes from the future sale after you’ve increased the enterprise value 10x. I’m sure that people have made poor decisions for short-term gains, but the real issue is giving immense power to someone who has never actually had to build teams, ship products, or go the extra mile to make customers happy. Being “smart” doesn’t mean you always make good decisions. Some of the most successful entrepreneurs I know aren’t particularly book smart. In fact, much of their success could be attributed to the fact that they just didn’t quit when any other reasonable/normal person would have thrown in the towel.
- erosenbe0 5y ago
  Ehh some PEGs do not care about long-term. Often they want to do anything that can get them some lump sum dividends and bonus payouts. Cost cutting combined with a recapitalization cookbook, selling assets like real-estate, and then using the proceeds and borrowed cash for themselves. Terminal price won't matter much due to either the initial windfall or because someone else will be holding enough of the bag after recap.

jacobr1 5y ago

Having dealt with 2 PE exists, rarely is the proposal something as upfront and silly as slash everyones pay. That probably does happen for a company being restructured in the red, but the more subtle actions tend to be things like: * Comp bands for are now targeting p50 averages rather than p75 or top of market. So you can't close new hires that are going competitors. And you can't give raises to your top performers * The health benefits are less generous when renegotiated for the following year * T&E that would have been approved - granted some maybe that shouldn't - but importantly some that should have for top-sales people, are no longer approvable. So your top sales people leave. Or similarly the accelerators or other measures are changed, that might look good on paper but rub top sales people the wrong way. * Head-count isn't replaced, so teams have to take on more work * Perks like conference attendance or hardware upgrades, which arguable aren't perks but investments in your team's productivity, are cut/limited

jscode 5y ago
>> Having dealt with 2 PE exists, rarely is the proposal something as upfront and silly as slash everyones pay. Agreed, but a gradual erosion can occur over the course of several years. PEGs and the operating company's management team have massive incentives to hit their growth metrics. If decreasing 401K contributions helps management hit their EBITDA target, many would argue that they should do exactly that. However, the impact of these decisions accumulates over time and can eventually derail a company's performance.
- TheOtherHobbes 5y ago
  The reality is that this kind of stupidity is built into accounting systems. It's not even the people with the spreadsheets. They're doing what they've been taught to do. It just happens to be completely wrong-headed - if you're interested in tangible long term growth and not quarterly plunder which moves money around without seeding genuine real value. Which is why companies can "grow" in accounting terms while actually being hollowed out as going concerns with a future. Likewise with the planetary economy, which appears to be growing financially while in ecological terms it's almost literally eating its own seed corn. A better approach needs a revolution in accounting. Current accounting practices are built on so many false assumptions they cannot possibly produce lasting long term opportunity, except for a tiny minority of exceptionally and unhealthily privileged people.

serverlessmom 5y ago

I definitely agree with you. I would further argue that the "analyst mentality" has become so engrossed in the foundation of capitalism(and always has been, really) that we see companies across many industries closing down due to the "worker shortage". When in reality the CEO's of the companies complaining the loudest that "no one wants to work" have decided that paying living wages in a deeply competitive job market is less doable than letting the company totally stagnate and dissolve due to lack of people willing to work hard for pennies.

pjmorris 5y ago
I've long joked that Excel will be the downfall of western civilization, but it's less funny every year.
- bb88 5y ago
  You either like Paul Krugman or you hate him but there's no denying that excel bugs influenced economic policy. https://www.nytimes.com/2013/04/19/opinion/krugman-the-excel-depression.html https://www.nytimes.com/2013/04/19/opinion/krugman-the-excel...
jbay808 5y ago
The CEOs whose own compensation has been skyrocketing because that's just the market rate for talent, right?

alecbz 5y ago

I think the key that leads to 3b is that costs are hard to measure. I.e., I think it's less that the PEG are coming into it with the idea that they want to cut and are cherry picking for that, it's that they will happily do whatever the easily available data tells them is right, ignoring or handwaving the harder to get data.