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0 pointsnostrademons1y ago0 comments

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.

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4 comments · 4 top-level

kreims1y 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.

victorbjorklund1y 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.

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jasode1y 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.

overrun111y 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.

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