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Interesting that this quote was initially about stock options at tech companies. It turned out that stock options did become nearly universal in tech compensat

Interesting that this quote was initially about stock options at tech companies. It turned out that stock options did become nearly universal in tech compensation, and companies that granted them outcompeted companies that did not. So the management that was ostensibly “doing a massive blag at the expense of shareholders” wasn’t really, time vindicated their practices and things like option backdating and not treating them as an expense weren’t even really necessary, but it took a few years. It wasn’t obvious in 2002 that this is how it would play out. And relevant to the title quote: maybe it should be amended to “good ideas do not need a lot of lies to gain public acceptance eventually”. The dynamic here is that a significant part of public opinion is simply “well, this is how things work now, and it seems to be working”, and any new and innovative idea by definition is not going to be how things work now. The lies are needed to spur action and disturb the equilibrium of today. But if you’re still telling lies a few years in, you’ve failed and it’s a bad idea to begin with.

peacebeard 7mo ago
So in your view, even a useful innovative idea cannot gain traction without being overhyped?
- SpicyLemonZest 7mo ago
  Almost any useful innovation is going to have a right tail of people who overhype it. They shouldn't, and I wish they wouldn't. But if your strategy for evaluating new ideas is to find the biggest sources of hype and fact check them, you're going to systematically undervalue innovation.
  - 6510 7mo ago
    The problem is that many care more about presentation than substance. The irony gets overwhelming where boring is usually the best solution and the least exciting.
indymike 7mo ago
There was a body of evidence far before 2002 that dealing employees in was a good move.
deleted 7mo ago
[deleted]
commandlinefan 7mo ago
> stock options did become nearly universal in tech compensation Although I've noticed that options have been replaced more and more these days with RSU's (plain old grants) because options have a tendency to go "underwater", suggesting that they weren't all that great to begin with.
- lotsofpulp 7mo ago
  It’s been standard advice on this forum for at least 10 years to value options at $0, and only consider cash comp + RSUs.
  - 0x3f 7mo ago
    Options have some minor value in signalling that you're a true believer. You should in fact care only about base salary, but not telling the people doing the hiring that can be quite useful. Doing a fake come-down on base in exchange for options shows you are invested and surely worth hiring.
- zozbot234 7mo ago
  Right, options go underwater precisely when the company is not doing well and you are at greatest risk of losing the job. That's not a great risk profile.
- JumpCrisscross 7mo ago
  > options have been replaced more and more these days with RSU's (plain old grants) RSUs are also much-less liquid and tightly controllable by companies than actual stock. That has made them attractive to management and insiders.
  - bluGill 7mo ago
    I learned long ago (when my company decided they couldn't give me options because we were too big so they did these "I can't believe it isn't an option", which expired worthless): until cash is in my bank account it is just a promise waiting to be broken. If I want to invest I want it my choice. In any case, it is a bad idea to invest in the company you work for - unless you are high enough up in the company that you see the real books, or you have so much invested they have to show you as a large shareholder. (nobody is the later - large shareholders have a full time job managing their money not working for someone else). There have been a number of cases where a company has unexpectedly filed bankruptcy and someone lost their job and their savings on the same day.
pjc50 7mo ago
The specific lie discussed was the idea that granting options was not somehow an "expense" and could be excluded from the accounts. (Google tells me this is a relevant summary of US GAAP https://carta.com/uk/en/learn/startups/equity-management/asc-718/ https://carta.com/uk/en/learn/startups/equity-management/asc... )
- nostrademons 7mo ago
  That's not what the quote in the article is: > Our lecturer, in summing up the debate, made the not unreasonable point that if stock options really were a fantastic tool which unleashed the creative power in every employee, everyone would want to expense as many of them as possible, the better to boast about how innovative, empowered and fantastic they were. That's saying that it's stock options themselves which are the bad idea. The lie is in how they are expensed or not expensed. The point the accountant is making is that if stock options were a good idea, they could be expensed, thus not needing the lie. But nowadays, stock options are expensed, right there in public, and they are still considered a good idea.
  - camgunz 7mo ago
    Nah I think the advice generally is "ignore options."
    - zdc1 7mo ago
      People who sell lottery tickets, on average, do better than those who buy them. The same applies to stock options. Which is why "bonus" options are fine, but "buying" them by taking ESOP over potential salary, can be a bad choice.
      - chermi 7mo ago
        What behavioral incentive do lotto tickets give the buyer? Options/stock work for both parties because of alignment.
ekjhgkejhgk 7mo ago
> Interesting that this quote was initially about stock options at tech companies. It turned out that stock options did become nearly universal in tech compensation, and companies that granted them outcompeted companies that did not. So the management that was ostensibly “doing a massive blag at the expense of shareholders” wasn’t really, time vindicated their practices and things like option backdating and not treating them as an expense weren’t even really necessary, but it took a few years. It wasn’t obvious in 2002 that this is how it would play out. I happen to have read probably everything that Warren Buffet wrote on this subject, and in my opinion your take is confused at best. First, you say that “stock options did become nearly universal“. No, they were already nearly universal at the time that this conversation was happening. I remember that Warren Buffet was quoting, going by memory, something like all but 3 out of 500 S&P DONT companies do it, or nasdaq or whatever index he was talking about. The fact that almost all companies do it doesnt mean its the right thing to do and if almost no company did it, Buffet wouldnt be complaining about it. Second, you say “companies that granted them outcompeted companies that did not“. I literally have no idea how you came to this conclusion since, like I said, at the time this conversation was going on almost all company did it. Not because the companies that didnt do it died out, but because companies that didnt do it switching into doing it. Third, and most important, I believe you misunderstand what the conversation is about. Expensing stock options is not a competitive advantage. Granting stock options might be, the rationale that paying management and staff more attracts the best people is an argument worth having. But the conversation isnt about whether its a good idea to grant stock options, the conversation is about which entry you should put your stock options when preparing financial statements. The author says clearly that this is about accounting, but you missed that. Theres no competitive advantage in doing one way or the other. The reason why Buffet complains about them is that A) it makes harder to discern from financial statements how much staff is costing the shareholders, not that its a competitive advangage or disadvantage, and B) if theres a cost that you need to pay in order to run the business, thats called an expense, and by your own argument you need stock options to run the business, therefore those are expenses and thats how they should be labeled in the income statement. The argument of companies doing it is that “earnings“ is bigger if there are things which are expenses but you dont call them that. Its literally saying that pnl = P - L but you know what, its bigger if I just report the P and hide the L.
asa400 7mo ago
> and companies that granted them outcompeted companies that did not What are you basing this claim on?
- nostrademons 7mo ago
  That of the top 10 companies in the S&P 500 [1], all but Broadcom and Berkshire Hathaway give generous stock options, and also that of the top 10 in 2000 [2], only one (Microsoft), maybe 2 (Cisco) did. If you look at change in index composition, or even total earnings by company, you'll see a very steady and dramatic replacement of companies that did not spread the wealth through stock options & RSUs with companies that did. [1] https://www.slickcharts.com/sp500 https://www.slickcharts.com/sp500 [2] https://www.visualcapitalist.com/ranked-the-largest-sp-500-companies-over-time-1985-2024/ https://www.visualcapitalist.com/ranked-the-largest-sp-500-c...
  - raw_anon_1111 7mo ago
    Conflating stock options and RSUs?
eleveriven 7mo ago
Lots of things succeed after early hype not because the lies were necessary, but because the underlying idea was good enough to survive them

peacebeard 7mo ago

So in your view, even a useful innovative idea cannot gain traction without being overhyped?

SpicyLemonZest 7mo ago
Almost any useful innovation is going to have a right tail of people who overhype it. They shouldn't, and I wish they wouldn't. But if your strategy for evaluating new ideas is to find the biggest sources of hype and fact check them, you're going to systematically undervalue innovation.
- 6510 7mo ago
  The problem is that many care more about presentation than substance. The irony gets overwhelming where boring is usually the best solution and the least exciting.

indymike 7mo ago

There was a body of evidence far before 2002 that dealing employees in was a good move.

deleted 7mo ago

[deleted]

commandlinefan 7mo ago

> stock options did become nearly universal in tech compensation Although I've noticed that options have been replaced more and more these days with RSU's (plain old grants) because options have a tendency to go "underwater", suggesting that they weren't all that great to begin with.

lotsofpulp 7mo ago
It’s been standard advice on this forum for at least 10 years to value options at $0, and only consider cash comp + RSUs.
- 0x3f 7mo ago
  Options have some minor value in signalling that you're a true believer. You should in fact care only about base salary, but not telling the people doing the hiring that can be quite useful. Doing a fake come-down on base in exchange for options shows you are invested and surely worth hiring.
zozbot234 7mo ago
Right, options go underwater precisely when the company is not doing well and you are at greatest risk of losing the job. That's not a great risk profile.
JumpCrisscross 7mo ago
> options have been replaced more and more these days with RSU's (plain old grants) RSUs are also much-less liquid and tightly controllable by companies than actual stock. That has made them attractive to management and insiders.
- bluGill 7mo ago
  I learned long ago (when my company decided they couldn't give me options because we were too big so they did these "I can't believe it isn't an option", which expired worthless): until cash is in my bank account it is just a promise waiting to be broken. If I want to invest I want it my choice. In any case, it is a bad idea to invest in the company you work for - unless you are high enough up in the company that you see the real books, or you have so much invested they have to show you as a large shareholder. (nobody is the later - large shareholders have a full time job managing their money not working for someone else). There have been a number of cases where a company has unexpectedly filed bankruptcy and someone lost their job and their savings on the same day.

pjc50 7mo ago

The specific lie discussed was the idea that granting options was not somehow an "expense" and could be excluded from the accounts. (Google tells me this is a relevant summary of US GAAP https://carta.com/uk/en/learn/startups/equity-management/asc-718/ https://carta.com/uk/en/learn/startups/equity-management/asc... )

nostrademons 7mo ago
That's not what the quote in the article is: > Our lecturer, in summing up the debate, made the not unreasonable point that if stock options really were a fantastic tool which unleashed the creative power in every employee, everyone would want to expense as many of them as possible, the better to boast about how innovative, empowered and fantastic they were. That's saying that it's stock options themselves which are the bad idea. The lie is in how they are expensed or not expensed. The point the accountant is making is that if stock options were a good idea, they could be expensed, thus not needing the lie. But nowadays, stock options are expensed, right there in public, and they are still considered a good idea.
- camgunz 7mo ago
  Nah I think the advice generally is "ignore options."
  - zdc1 7mo ago
    People who sell lottery tickets, on average, do better than those who buy them. The same applies to stock options. Which is why "bonus" options are fine, but "buying" them by taking ESOP over potential salary, can be a bad choice.
    - chermi 7mo ago
      What behavioral incentive do lotto tickets give the buyer? Options/stock work for both parties because of alignment.

ekjhgkejhgk 7mo ago

> Interesting that this quote was initially about stock options at tech companies. It turned out that stock options did become nearly universal in tech compensation, and companies that granted them outcompeted companies that did not. So the management that was ostensibly “doing a massive blag at the expense of shareholders” wasn’t really, time vindicated their practices and things like option backdating and not treating them as an expense weren’t even really necessary, but it took a few years. It wasn’t obvious in 2002 that this is how it would play out. I happen to have read probably everything that Warren Buffet wrote on this subject, and in my opinion your take is confused at best. First, you say that “stock options did become nearly universal“. No, they were already nearly universal at the time that this conversation was happening. I remember that Warren Buffet was quoting, going by memory, something like all but 3 out of 500 S&P DONT companies do it, or nasdaq or whatever index he was talking about. The fact that almost all companies do it doesnt mean its the right thing to do and if almost no company did it, Buffet wouldnt be complaining about it. Second, you say “companies that granted them outcompeted companies that did not“. I literally have no idea how you came to this conclusion since, like I said, at the time this conversation was going on almost all company did it. Not because the companies that didnt do it died out, but because companies that didnt do it switching into doing it. Third, and most important, I believe you misunderstand what the conversation is about. Expensing stock options is not a competitive advantage. Granting stock options might be, the rationale that paying management and staff more attracts the best people is an argument worth having. But the conversation isnt about whether its a good idea to grant stock options, the conversation is about which entry you should put your stock options when preparing financial statements. The author says clearly that this is about accounting, but you missed that. Theres no competitive advantage in doing one way or the other. The reason why Buffet complains about them is that A) it makes harder to discern from financial statements how much staff is costing the shareholders, not that its a competitive advangage or disadvantage, and B) if theres a cost that you need to pay in order to run the business, thats called an expense, and by your own argument you need stock options to run the business, therefore those are expenses and thats how they should be labeled in the income statement. The argument of companies doing it is that “earnings“ is bigger if there are things which are expenses but you dont call them that. Its literally saying that pnl = P - L but you know what, its bigger if I just report the P and hide the L.

asa400 7mo ago

> and companies that granted them outcompeted companies that did not What are you basing this claim on?

nostrademons 7mo ago
That of the top 10 companies in the S&P 500 [1], all but Broadcom and Berkshire Hathaway give generous stock options, and also that of the top 10 in 2000 [2], only one (Microsoft), maybe 2 (Cisco) did. If you look at change in index composition, or even total earnings by company, you'll see a very steady and dramatic replacement of companies that did not spread the wealth through stock options & RSUs with companies that did. [1] https://www.slickcharts.com/sp500 https://www.slickcharts.com/sp500 [2] https://www.visualcapitalist.com/ranked-the-largest-sp-500-companies-over-time-1985-2024/ https://www.visualcapitalist.com/ranked-the-largest-sp-500-c...
- raw_anon_1111 7mo ago
  Conflating stock options and RSUs?

eleveriven 7mo ago

Lots of things succeed after early hype not because the lies were necessary, but because the underlying idea was good enough to survive them