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It's funny I was just talking about this yesterday. By tying compensation so tightly to stock price, it incentivizes everyone to do what's best for the stock p

It's funny I was just talking about this yesterday. By tying compensation so tightly to stock price, it incentivizes everyone to do what's best for the stock price, not what's best for the customer. This email is the perfect example of that.

delfinom 3y ago
That's the majority of US run companies these days. If it isn't employees with stock grants, the executives themselves have performance bonuses. So doing every long term business killing thing for short term personal profit is status quo.
prox 3y ago
It also incentives short-term thinking and results. Some managers will burn whole departments just to hit a target and then leave after they got their bonus and the company goes down.
- tempodox 3y ago
  Maybe companies that let themselves be controlled by such forces deserve to go down.
  - arebop 3y ago
    The problem is that ~all companies let themselves be controlled by such forces. Given there are so few counter examples it looks like it is a systemic issue and not a choice each board makes independently. Google's unusual share class structure was supposed to give them a degree of independence from these forces, but it didn't last. They still tie employee comp to share prices, so they still have to care about share prices. Facebook has even stronger centralization of shareholder power, but its pay structure is very similar. Can you think of any example of a public company that is resisting these forces?
    - dahfizz 3y ago
      Apple comes to mind as a company with some degree of long term vision and strong leadership. They are meticulous about maintaining their brand, and so far have resisted the enshitification. They also have more cash than they know how to spend. So maybe the pressure to increase revenue this quarter is just lower in general.
      - wizzwizz4 3y ago
        They also destroy perfectly good computers with their trade-in system, reducing the resale and spare parts market. This would be the plot of one of those environmentalist children's cartoons.
        lazide 3y ago
        There are no true saints in the world. But some monsters are much worse than others.
        TradingPlaces 3y ago
        They resell them here https://www.apple.com/shop/refurbished https://www.apple.com/shop/refurbished
        wizzwizz4 3y ago
        From that page: > If your device isn’t eligible for credit, we’ll recycle it for free. Per https://www.vice.com/en/article/yp73jw/apple-recycling-iphones-macbooks https://www.vice.com/en/article/yp73jw/apple-recycling-iphon... (2017, so it might have changed since): > Apple rejects current industry best practices by forcing the recyclers it works with to shred iPhones and MacBooks so they cannot be repaired or reused—instead, they are turned into tiny shards of metal and glass. > "Materials are manually and mechanically disassembled and shredded into commodity-sized fractions of metals, plastics, and glass," John Yeider, Apple's recycling program manager, wrote under a heading called "Takeback Program Report" in a 2013 report to Michigan Department of Environmental Quality. "All hard drives are shredded in confetti-sized pieces. The pieces are then sorted into commodities grade materials. After sorting, the materials are sold and used for production stock in new products. No reuse. No parts harvesting. No resale." Recycling is not a good thing: it is an expensive and intensive industrial process. Recycling is a last resort: if you have to make new stuff then sure, recycle, but it's better to avoid making new stuff by (a) not needing stuff in the first place, and (b) maintaining and repairing old stuff for as long as possible. Whatever happened to “reduce” and “reuse”?
  - paxys 3y ago
    And how do they "go down" if they have monopolized their product area and made it impossible for new competitors to enter the field?
comprambler 3y ago
why companies are terrible https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co. depressing
- mostlysimilar 3y ago
  This is unbelievable. Imagine how different the world would be today if this had gone the other way.
  - Workaccount2 3y ago
    If it had gone the other way it would have been overturned probably pretty quickly. It doesn't make sense for owners of something to not be in control of it.
    - ClumsyPilot 3y ago
      > It doesn't make sense for owners of something to not be in control of it. When I say this about my phone, I get told that It was my choice to buy it. I would really like to have the same set of principles applied consistently to ownership of end product and ownership of the stock. Currently some people enjoy greater rights for no reason other than privilidge.
  - kmlx 3y ago
    i don’t find it at all unbelievable. i think the judgement is pretty spot on: > A business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end. The discretion of directors is to be exercised in the choice of means to attain that end, and does not extend to a change in the end itself, to the reduction of profits, or to the non-distribution of profits among stockholders in order to devote them to other purposes…
  - chongli 3y ago
    You never know, it’s the law of unintended consequences. Maybe it would’ve caused people to walk away from stocks as an investment. Maybe people would’ve put all their money in real estate instead. Kind of staggering if you think about how much worse the whole housing crisis could be.
AvocadoPanic 3y ago
In this instance their customers are the advertisers / ad buyers not chrome users.
gen220 3y ago
Aligning employees' interests with the long-term interests of the company is really challenging. A typical counterexample to compensating in proportion to equity performance is compensating in proportion to revenue or profit performance (i.e. something still related to market performance, but with fewer tangential variabilities). But I don't think that switcheroo would have resulted in a different outcome, here? I think, perhaps, the underlying issue is the cultural norm of lionizing revenue to the exclusion of all other corporate principles. In this case, it's not really the Sales person's fault. It's Jerry's manager, or Jerry's managers' manager, etc. – for allowing the feature-blind prioritization of revenue to fester.
- jedberg 3y ago
  Most businesses have one or more metrics that they track that mirrors customer happiness or satisfaction. For example Netflix has total paid subscribers. Amazon has monthly active users (as does reddit and whole bunch of other companies). Reddit also has daily average time on site. You could easily tie compensation to these metrics. Of course in some cases these too can be gamed, but as long as you find a metric that mirrors customer happiness, then everyone is incentivized to increase customer happiness.
  - peter422 3y ago
    You can increase monthly active numbers by making unsubscribing harder. You can increase average time on site by just funneling people lowest common denominator garbage all day. Pretending there is some magic metric here and Google isn’t meeting it is ridiculous. Google is very well liked by the average person!
  - gen220 3y ago
    Those metrics are in fact routinely gamed by well-meaning PMs whose (perceived) compensation is affected by those numbers, with UX-dubious features like unnecessary and disruptive notifications, highly discounted introductory promotional periods that most users churn out of, and so on. Hence the adage: the most effective way to take a useful metric for measuring progress towards a goal and make it useless, is to make the metric the goal.
manquer 3y ago
Hardly , users are not the customers we are not paying for search , they only have to maintain the image so we don’t sour on the brand , they don’t have to care about our actual experience there are no competitors The customers are ad buyers and their concerns and revenue dips are being taken seriously here as the public company /esop system is designed to do.
jeroenhd 3y ago
I think tying compensation to stock price makes sense... if you work for a company till retirement. If these stock options are the difference between covering your retirement or working into your seventies, employees would think long-term. If https://www.cnbc.com/2019/12/03/a-tech-firm-tried-it-all-to-stop-turnover-only-one-thing-worked.html https://www.cnbc.com/2019/12/03/a-tech-firm-tried-it-all-to-... is to be believed, average tenure at Google is just over a year. That turns stock options from a retirement fund into a nice bonus to cover looking for a new job.
moneywoes 3y ago
what’s the alternative

delfinom 3y ago

That's the majority of US run companies these days. If it isn't employees with stock grants, the executives themselves have performance bonuses. So doing every long term business killing thing for short term personal profit is status quo.

prox 3y ago

It also incentives short-term thinking and results. Some managers will burn whole departments just to hit a target and then leave after they got their bonus and the company goes down.

tempodox 3y ago
Maybe companies that let themselves be controlled by such forces deserve to go down.
- arebop 3y ago
  The problem is that ~all companies let themselves be controlled by such forces. Given there are so few counter examples it looks like it is a systemic issue and not a choice each board makes independently. Google's unusual share class structure was supposed to give them a degree of independence from these forces, but it didn't last. They still tie employee comp to share prices, so they still have to care about share prices. Facebook has even stronger centralization of shareholder power, but its pay structure is very similar. Can you think of any example of a public company that is resisting these forces?
  - dahfizz 3y ago
    Apple comes to mind as a company with some degree of long term vision and strong leadership. They are meticulous about maintaining their brand, and so far have resisted the enshitification. They also have more cash than they know how to spend. So maybe the pressure to increase revenue this quarter is just lower in general.
    - wizzwizz4 3y ago
      They also destroy perfectly good computers with their trade-in system, reducing the resale and spare parts market. This would be the plot of one of those environmentalist children's cartoons.
      - lazide 3y ago
        There are no true saints in the world. But some monsters are much worse than others.
      - TradingPlaces 3y ago
        They resell them here https://www.apple.com/shop/refurbished https://www.apple.com/shop/refurbished
        wizzwizz4 3y ago
        From that page: > If your device isn’t eligible for credit, we’ll recycle it for free. Per https://www.vice.com/en/article/yp73jw/apple-recycling-iphones-macbooks https://www.vice.com/en/article/yp73jw/apple-recycling-iphon... (2017, so it might have changed since): > Apple rejects current industry best practices by forcing the recyclers it works with to shred iPhones and MacBooks so they cannot be repaired or reused—instead, they are turned into tiny shards of metal and glass. > "Materials are manually and mechanically disassembled and shredded into commodity-sized fractions of metals, plastics, and glass," John Yeider, Apple's recycling program manager, wrote under a heading called "Takeback Program Report" in a 2013 report to Michigan Department of Environmental Quality. "All hard drives are shredded in confetti-sized pieces. The pieces are then sorted into commodities grade materials. After sorting, the materials are sold and used for production stock in new products. No reuse. No parts harvesting. No resale." Recycling is not a good thing: it is an expensive and intensive industrial process. Recycling is a last resort: if you have to make new stuff then sure, recycle, but it's better to avoid making new stuff by (a) not needing stuff in the first place, and (b) maintaining and repairing old stuff for as long as possible. Whatever happened to “reduce” and “reuse”?
- paxys 3y ago
  And how do they "go down" if they have monopolized their product area and made it impossible for new competitors to enter the field?

comprambler 3y ago

why companies are terrible https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co. depressing

mostlysimilar 3y ago
This is unbelievable. Imagine how different the world would be today if this had gone the other way.
- Workaccount2 3y ago
  If it had gone the other way it would have been overturned probably pretty quickly. It doesn't make sense for owners of something to not be in control of it.
  - ClumsyPilot 3y ago
    > It doesn't make sense for owners of something to not be in control of it. When I say this about my phone, I get told that It was my choice to buy it. I would really like to have the same set of principles applied consistently to ownership of end product and ownership of the stock. Currently some people enjoy greater rights for no reason other than privilidge.
- kmlx 3y ago
  i don’t find it at all unbelievable. i think the judgement is pretty spot on: > A business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end. The discretion of directors is to be exercised in the choice of means to attain that end, and does not extend to a change in the end itself, to the reduction of profits, or to the non-distribution of profits among stockholders in order to devote them to other purposes…
- chongli 3y ago
  You never know, it’s the law of unintended consequences. Maybe it would’ve caused people to walk away from stocks as an investment. Maybe people would’ve put all their money in real estate instead. Kind of staggering if you think about how much worse the whole housing crisis could be.

AvocadoPanic 3y ago

In this instance their customers are the advertisers / ad buyers not chrome users.

gen220 3y ago

Aligning employees' interests with the long-term interests of the company is really challenging. A typical counterexample to compensating in proportion to equity performance is compensating in proportion to revenue or profit performance (i.e. something still related to market performance, but with fewer tangential variabilities). But I don't think that switcheroo would have resulted in a different outcome, here? I think, perhaps, the underlying issue is the cultural norm of lionizing revenue to the exclusion of all other corporate principles. In this case, it's not really the Sales person's fault. It's Jerry's manager, or Jerry's managers' manager, etc. – for allowing the feature-blind prioritization of revenue to fester.

jedberg 3y ago
Most businesses have one or more metrics that they track that mirrors customer happiness or satisfaction. For example Netflix has total paid subscribers. Amazon has monthly active users (as does reddit and whole bunch of other companies). Reddit also has daily average time on site. You could easily tie compensation to these metrics. Of course in some cases these too can be gamed, but as long as you find a metric that mirrors customer happiness, then everyone is incentivized to increase customer happiness.
- peter422 3y ago
  You can increase monthly active numbers by making unsubscribing harder. You can increase average time on site by just funneling people lowest common denominator garbage all day. Pretending there is some magic metric here and Google isn’t meeting it is ridiculous. Google is very well liked by the average person!
- gen220 3y ago
  Those metrics are in fact routinely gamed by well-meaning PMs whose (perceived) compensation is affected by those numbers, with UX-dubious features like unnecessary and disruptive notifications, highly discounted introductory promotional periods that most users churn out of, and so on. Hence the adage: the most effective way to take a useful metric for measuring progress towards a goal and make it useless, is to make the metric the goal.

manquer 3y ago

Hardly , users are not the customers we are not paying for search , they only have to maintain the image so we don’t sour on the brand , they don’t have to care about our actual experience there are no competitors The customers are ad buyers and their concerns and revenue dips are being taken seriously here as the public company /esop system is designed to do.

jeroenhd 3y ago

I think tying compensation to stock price makes sense... if you work for a company till retirement. If these stock options are the difference between covering your retirement or working into your seventies, employees would think long-term. If https://www.cnbc.com/2019/12/03/a-tech-firm-tried-it-all-to-stop-turnover-only-one-thing-worked.html https://www.cnbc.com/2019/12/03/a-tech-firm-tried-it-all-to-... is to be believed, average tenure at Google is just over a year. That turns stock options from a retirement fund into a nice bonus to cover looking for a new job.

moneywoes 3y ago

what’s the alternative