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>Given that the employees are so crucial in building the product that is sold, why is it so uncommon for significant proceeds from M&As to go to employees rathe

by jasode 12y ago

>Given that the employees are so crucial in building the product that is sold, why is it so uncommon for significant proceeds from M&As to go to employees rather than founders? It's based on the concept of "ownership." The founders literally own the company. The windfall from selling the company by definition, goes to the owners. That's how it works. I "own" a car. The mechanic at the shop is the one doing all the grease work of changing the oil and spark plugs etc. But when I sell the car, I (the owner) get the money and not the mechanic. Even though one can argue that the mechanic is the one most responsible for keeping my car running in good enough condition to sell later, I'm still the one who owns the car. The mechanic gets his payment via service fees he charges me. The mechanic getting sweaty and dirty does not grant any ownership of my car. Ownership grants ownership. Substitute car with company. (Presumably, more mechanics happen to own their own cars which makes "ownership" of cars and its ownership benefits much more obvious to the layperson than ownership of companies.) So, to translate your question in the most direct way, you're asking "why do owners get rewards of M&A but non-owners (such as employees) do not?" If you think of it that way, the question answers itself. It's tautology. But your question-behind-the-question could then be, "well, why don't the employees get part ownership?" ... and the answer is, they sometimes do! One way is for the "employee" to start their own company. (S Wozniak leaves HP, and S. Jobs doesn't stay with Atari.) The other way is for other owners to grant partial ownership through stock shares (equity). This financial arrangement is almost always a tradeoff because the founder can't afford to pay market rate of full salary. Partial ownership for employees is the dangling carrot compensating for uncompetitive wages. Since established companies like Google Inc and Apple Inc offer competitive wages, they don't need to give new employees partial-ownership of any significant amount.

ForHackernews 12y ago
Owners and stock grants aren't the only possible model, and your righteous insistence that it's self-evident that economic gains should obviously accrue to "owners" is disingenuous. There are many cooperatives where employees all share ownership of the enterprise, http://www.sfgate.com/business/article/Cooperatives-give-new-meaning-to-sharing-economy-5502879.php http://www.sfgate.com/business/article/Cooperatives-give-new... and this model arguably makes even more sense for knowledge-economy companies that require little in the way of physical capital, and derive the majority of their value from the talents of skilled employees.
- jdhawk 12y ago
  The membership fee is their capital contribution, making them owners of the business. It's the same model, you just have a lot of "investors", instead of one person fronting the cash and paying people a salary.
- pessimizer 12y ago
  jasode is explaining things as they are, not as they should be. That if the employees are owners, then they will gain the benefits that owners gain is pretty obvious.
- mason55 12y ago
  > this model arguably makes even more sense for knowledge-economy companies that require little in the way of physical capital, and derive the majority of their value from the talents of skilled employees. Which is why you still have partnerships in business that are 100% service driven - consulting, law firms, etc. Software falls in between because it requires knowledge capital but it does produce something of substance that can be sold and re-sold. Also, in partnerships you're sharing ownership because you bring something irreplaceable to the table (generally your personal relationships). Front-line developers are usually replaceable as much as they like to think they aren't. Yes, they're more expensive than a factory line worker and you can't just code 40 hours a week and churn out product like a factory worker but you're not irreplaceable. You'll find that the people who AREN'T irreplaceable, either because of some industry or domain knowledge, can usually demand increased equity or profit sharing.
  - ForHackernews 12y ago
    I'd argue that, with the possible exception of creative artists (authors, musicians, painters, etc.) there's no such thing as an "irreplaceable" worker. Even founders--there's plenty of companies that have been successful after replacing the founder with another CEO--sometimes even more successful, if an experienced executive takes over from a wet-behind-the-ears founder.
    - mason55 12y ago

by jasode 12y ago

ForHackernews 12y ago

Owners and stock grants aren't the only possible model, and your righteous insistence that it's self-evident that economic gains should obviously accrue to "owners" is disingenuous. There are many cooperatives where employees all share ownership of the enterprise, http://www.sfgate.com/business/article/Cooperatives-give-new-meaning-to-sharing-economy-5502879.php http://www.sfgate.com/business/article/Cooperatives-give-new... and this model arguably makes even more sense for knowledge-economy companies that require little in the way of physical capital, and derive the majority of their value from the talents of skilled employees.

jdhawk 12y ago
The membership fee is their capital contribution, making them owners of the business. It's the same model, you just have a lot of "investors", instead of one person fronting the cash and paying people a salary.
pessimizer 12y ago
jasode is explaining things as they are, not as they should be. That if the employees are owners, then they will gain the benefits that owners gain is pretty obvious.
mason55 12y ago
> this model arguably makes even more sense for knowledge-economy companies that require little in the way of physical capital, and derive the majority of their value from the talents of skilled employees. Which is why you still have partnerships in business that are 100% service driven - consulting, law firms, etc. Software falls in between because it requires knowledge capital but it does produce something of substance that can be sold and re-sold. Also, in partnerships you're sharing ownership because you bring something irreplaceable to the table (generally your personal relationships). Front-line developers are usually replaceable as much as they like to think they aren't. Yes, they're more expensive than a factory line worker and you can't just code 40 hours a week and churn out product like a factory worker but you're not irreplaceable. You'll find that the people who AREN'T irreplaceable, either because of some industry or domain knowledge, can usually demand increased equity or profit sharing.
- ForHackernews 12y ago
  I'd argue that, with the possible exception of creative artists (authors, musicians, painters, etc.) there's no such thing as an "irreplaceable" worker. Even founders--there's plenty of companies that have been successful after replacing the founder with another CEO--sometimes even more successful, if an experienced executive takes over from a wet-behind-the-ears founder.
  - mason55 12y ago