4 ms·

The article is arguing for ESOPs, basically stock options for employees. The examples cited are actually quite tame by tech industry standards: "During Central

The article is arguing for ESOPs, basically stock options for employees. The examples cited are actually quite tame by tech industry standards: "During Central States’ worst year, employees earned the equivalent of 6 percent of their pay in stock, during their best they earned 26 percent." By contrast, FANG employees routinely make >50% of their compensation in stock, and it can be up to 80% in good years. As for how these get started, it's the same as any tech startup. The founding team owns the whole company at formation, and then they progressively give it away to increase the overall valuation of the company. You can do that through giving away stock in exchange for funding from a VC that you can use to pay employees, or you can give away stock directly in exchange for services rendered. And yes, this looks bad during a down year. Tech companies have this problem all the time - employees are demotivated when the stock price goes down, which can have further negative effects on the stock price.

jasode 2y ago
>As for how these get started, it's the same as any tech startup. [...] To clarify, the gp was asking a rhetorical question that he already knew the answer to when he stated, "How would a business [that already looks attractive for ESOP] like this get started? [... his recap similar to your recap ...]" To put it differently, the scenario he's trying to explain is something like this given that ~9 out 10 businesses fail : - you can't look at just a single company's successful timeline to judge the ESOP for society; you also have to consider all the failed companies and how ESOPs would play out in those timelines as well. Since ~90% of businesses fail, you have to play out the financial dynamics of employees buying into ownership of all those failed companies. And in contradiction of employee-ownership, a lot of employees would prefer getting a bigger paycheck from a dying company rather than having money deducted to buy worthless equity shares. - e.g. of course employees would love to be significant workers-cooperative owners of Amazon Inc and Apple Inc. But the analysis also must include employees owning worthless shares of Pets.com (bankrupt 2000 and shutdown) and Commodore Computer (bankrupt 1994). Some workers got employee-ownership shares of Commodore Inc instead of Apple Inc?!? Well, it sucks to be those workers.
victorbjorklund 2y ago
Getting some of your salary in stock options isn't really an employee owned company. How many % of total Google shares are owned by employees (excluding the founding employees)? 0,0000000001%? At least 50% would be required for it to be viewed as an employee owned company.
- nostrademons 2y ago
  I don't know about Google specifically, but I know that it's way more than 0.0000000001% because I personally have been paid more than 0.0001% of Google in stock compensation. A typical Series A startup reserves 20% of the company for the option pool, and then there are follow-on refresh grants. Note that if you run the math on the company in the article, they're considerably less generous than that. They say they have 1500 employees, $1B in revenue, and the average employee makes about 8-26% of their earnings. Figure that's maybe $20K/employee * 1500 employees = $30M in stock compensation on $1B in revenue, so they spend 3% of their revenue on stock compensation. If you figure the company is valued at $4B, they're giving away like 0.75% of the company per year, a bit less than Google and way less than a tech startup. This is probably a PR hit for Central States Manufacturing anyway, to help their recruitment efforts.
- stagger87 2y ago
  In an ESOP, employees typically own 100% of the stock.
- jonas21 2y ago
  Google spent $22 billion on stock-based compensation in 2023 [1]. That's over 1% of the stock of the company transferred to employees in one year. Now, many people probably sell that stock as soon as they can, so the employee ownership isn't cumulative over the years. But it would be quite hostile to employees to stop them from doing this in an effort to make the company more employee-owned. [1] https://abc.xyz/assets/52/88/5de1d06943cebc569ee3aa3a6ded/goog023-alphabet-2023-annual-report-web-1.pdf https://abc.xyz/assets/52/88/5de1d06943cebc569ee3aa3a6ded/go...
  - YokoZar 2y ago
overrun11 2y ago
There's no reason why this is beneficial. Money and stocks are fungible you can freely exchange one for the other as much as your heart desires. There's no difference between which one you receive.
- RhodesianHunter 2y ago
  You seem to have missed an absolutely critical element of what drives human behavior. We call it "incentive".
  - overrun11 2y ago
    Yes both the money and the stock are incentives and they are of equal value. You've still failed to explain why one is better than the other.
    - RhodesianHunter 2y ago
      Stock vests over time. By providing stock instead of cash the company incentivizes the employee to do their best, because that will ostensibly help the stock to be worth more than the cash by the time it vests. Hence, incentive. Does that make more sense?
- nostrademons 2y ago
  Money and stocks would be fungible if all companies were public, all investors had perfect information, and no employee could make a difference in the stock price of their employer. All three of those conditions are false. You may be working for a private company that you would not otherwise be able to buy the stock of; sometimes, employment is the only way to get ownership of it. You often have better information about how your own employer is doing than you do about random public companies. And for smaller companies, you can often make a difference in the company's bottom line. This is why companies offer stock compensation in the first place, as an incentive for you to have a stake in the company's success. If your company is a shithole or fraud, then you absolutely do not want to be receiving company stock. But then, if that's the case you may want to re-evaluate working for it at all.
kreims 2y ago
ESOPs are common in the civil engineer world. I have mixed feelings about it. Private company stock valuations look like a magic show to my untrained eyes. Employee-only buying can lead to weird cash-flow schemes, like your ESOP contribution being held, unbeknownst to you, in a zero-interest slush fund until stock frees up. What gets me most is that rank and file employees in the ESOP almost never have directly exercisable rights as shareholders to vote or have any say in the business. You don’t get to say no to a merger. You don’t get to fire the CEO when his big idea is a flop. The ESOP vote is wrapped up in a trust or some abstraction controlled by an advisor or a board probably appointed by the real board of the company. Ultimately the executive staff and hand-picked insiders will have all the real authority of ownership. Employee stock thus is not much more than a complex pension program for almost everyone. Regular employees will not be real owners in any meaningful sense unless they get into the small trust network of existing owners. If you’re an early arrival to an ESOP with good growth potential, you will do way better than someone with a little 401K match. They also get great tax breaks. Overall they’re good for employees, but the messaging is usually misleading.

jasode 2y ago

>As for how these get started, it's the same as any tech startup. [...] To clarify, the gp was asking a rhetorical question that he already knew the answer to when he stated, "How would a business [that already looks attractive for ESOP] like this get started? [... his recap similar to your recap ...]" To put it differently, the scenario he's trying to explain is something like this given that ~9 out 10 businesses fail : - you can't look at just a single company's successful timeline to judge the ESOP for society; you also have to consider all the failed companies and how ESOPs would play out in those timelines as well. Since ~90% of businesses fail, you have to play out the financial dynamics of employees buying into ownership of all those failed companies. And in contradiction of employee-ownership, a lot of employees would prefer getting a bigger paycheck from a dying company rather than having money deducted to buy worthless equity shares. - e.g. of course employees would love to be significant workers-cooperative owners of Amazon Inc and Apple Inc. But the analysis also must include employees owning worthless shares of Pets.com (bankrupt 2000 and shutdown) and Commodore Computer (bankrupt 1994). Some workers got employee-ownership shares of Commodore Inc instead of Apple Inc?!? Well, it sucks to be those workers.

victorbjorklund 2y ago

Getting some of your salary in stock options isn't really an employee owned company. How many % of total Google shares are owned by employees (excluding the founding employees)? 0,0000000001%? At least 50% would be required for it to be viewed as an employee owned company.

nostrademons 2y ago
I don't know about Google specifically, but I know that it's way more than 0.0000000001% because I personally have been paid more than 0.0001% of Google in stock compensation. A typical Series A startup reserves 20% of the company for the option pool, and then there are follow-on refresh grants. Note that if you run the math on the company in the article, they're considerably less generous than that. They say they have 1500 employees, $1B in revenue, and the average employee makes about 8-26% of their earnings. Figure that's maybe $20K/employee * 1500 employees = $30M in stock compensation on $1B in revenue, so they spend 3% of their revenue on stock compensation. If you figure the company is valued at $4B, they're giving away like 0.75% of the company per year, a bit less than Google and way less than a tech startup. This is probably a PR hit for Central States Manufacturing anyway, to help their recruitment efforts.
stagger87 2y ago
In an ESOP, employees typically own 100% of the stock.
jonas21 2y ago
Google spent $22 billion on stock-based compensation in 2023 [1]. That's over 1% of the stock of the company transferred to employees in one year. Now, many people probably sell that stock as soon as they can, so the employee ownership isn't cumulative over the years. But it would be quite hostile to employees to stop them from doing this in an effort to make the company more employee-owned. [1] https://abc.xyz/assets/52/88/5de1d06943cebc569ee3aa3a6ded/goog023-alphabet-2023-annual-report-web-1.pdf https://abc.xyz/assets/52/88/5de1d06943cebc569ee3aa3a6ded/go...
- YokoZar 2y ago

overrun11 2y ago

There's no reason why this is beneficial. Money and stocks are fungible you can freely exchange one for the other as much as your heart desires. There's no difference between which one you receive.

RhodesianHunter 2y ago
You seem to have missed an absolutely critical element of what drives human behavior. We call it "incentive".
- overrun11 2y ago
  Yes both the money and the stock are incentives and they are of equal value. You've still failed to explain why one is better than the other.
  - RhodesianHunter 2y ago
    Stock vests over time. By providing stock instead of cash the company incentivizes the employee to do their best, because that will ostensibly help the stock to be worth more than the cash by the time it vests. Hence, incentive. Does that make more sense?
nostrademons 2y ago
Money and stocks would be fungible if all companies were public, all investors had perfect information, and no employee could make a difference in the stock price of their employer. All three of those conditions are false. You may be working for a private company that you would not otherwise be able to buy the stock of; sometimes, employment is the only way to get ownership of it. You often have better information about how your own employer is doing than you do about random public companies. And for smaller companies, you can often make a difference in the company's bottom line. This is why companies offer stock compensation in the first place, as an incentive for you to have a stake in the company's success. If your company is a shithole or fraud, then you absolutely do not want to be receiving company stock. But then, if that's the case you may want to re-evaluate working for it at all.

kreims 2y ago

ESOPs are common in the civil engineer world. I have mixed feelings about it. Private company stock valuations look like a magic show to my untrained eyes. Employee-only buying can lead to weird cash-flow schemes, like your ESOP contribution being held, unbeknownst to you, in a zero-interest slush fund until stock frees up. What gets me most is that rank and file employees in the ESOP almost never have directly exercisable rights as shareholders to vote or have any say in the business. You don’t get to say no to a merger. You don’t get to fire the CEO when his big idea is a flop. The ESOP vote is wrapped up in a trust or some abstraction controlled by an advisor or a board probably appointed by the real board of the company. Ultimately the executive staff and hand-picked insiders will have all the real authority of ownership. Employee stock thus is not much more than a complex pension program for almost everyone. Regular employees will not be real owners in any meaningful sense unless they get into the small trust network of existing owners. If you’re an early arrival to an ESOP with good growth potential, you will do way better than someone with a little 401K match. They also get great tax breaks. Overall they’re good for employees, but the messaging is usually misleading.