For example, let's say a private owner starts a company, hired employees, pays them the agreed wage, and makes a profit. The owner should get the profit, right? They didn't do all the work, but they directed things, and took the risk that their capital would be lost.
Now, suppose you had the same situation, except the owner sold to a private shareholder. This private shareholder wouldn't seem to be in a different position. They risked their capital that the enterprise might succeed.
What about a public IPO? Well, the investors are putting their capital at risk to sustain the enterprise. Still seems fair.
The objection is that subsequent shareholders have done nothing. They haven't worked on the business, and they haven't injected capital. Instead the stock merely changed hands from the original owners.
So, the idea is we don't pay these people, or we don't pay them very much. What are the options:
1. We pay out less to shareholders. But then, this would affect ALL shareholders, including the original owner who put capital in.
2. We reduce payments to shareholders who didn't put capital in. All very good, except this means that those who did put capital in can never sell at the real price. The share is worth more to a capital injector than to subsequent purchaser. So, these people would be more reluctant to invest capital in the first place, knowing the shares could not be adequately resold.
3. Cut payouts for everyone except employees. In this scenario, the business simply doesn't get created. There is no reward for the capital at risk.
There's no way I can see to get the outcome you want without wrecking the whole system that creates the wealth in the first place.
This really sums up the economic conversation in America these days (and FWIW I agree!).
What error? He isn't indicating that the mechanics of capital equity valuation are wrong, but that the sheer size of the value extraction from employees which occurs in de-risked large entities far exceeds what most people would expect.
You can have all of the conditions leading to wealth creation as in your post in a system where labour has far better leverage to capture a larger portion of their own value creation.
The interesting knock-on effect is that reviews of inequality indicate that firm formation is actually amplified in situations where labour has that leverage, as workers are able to get more self-generated capital through labour to finance their own bootstrapped projects/businesses.
It is incorrect to assert that the employees are creating all the value created by a company. Companies are not just people but also a lot of other things:
Easy to see and measure things like equipment, facilities and bank account balances.
Somewhat harder to quantify but still important things like business relationships, contracts, brands and reputation.
Even more effervescent but still important things like corporate culture & values; the so called "DNA" of a company.
All of this stuff matters a lot and exists mostly independent of the employees. It is owned (quite literally) by the stockholders so the value accrues to them.
They failed miserably.
Never underestimate the value of the backing, resources and organization of BigCorp to one's success.
This wasn't asserted, so it isn't really worthwhile to argue against it. Obviously other stakeholders can participant in value generation, including by providing influxes of capital.
Obviously employees are going to generate more value than they capture on the whole; if they didn't, the firm would crater over time.
The key here is the proportion.
I agree that the key is the proportion. One way to think about this is to imagine if one of the employees in question quit and started operating independently. How much $ could they make? If it's more than they made while working for the company then the proportion taken by shareholders might indeed be too high. But if it is not more, then you've got a hard hill to climb when making your argument that the proportion is significantly off.
If I start a business and purchase a $1M machine and pay someone $30K to run it and make $100K in profit, how much value extraction from the employee am I doing?
Then join or start a partnership. In a partnership, all the capital works for the firm. When you make partner, you buy in. (If you can't afford it, you get a loan or don't make partner.) When you retire or die, the stock is bought back. Coöperatives are another example.
Corporations aren't the only ownership structure. For private organizations that scale, however, they tend to win against partnerships and co-operatives.
you realize this won't garner much sympathy on the Silicon Valley town crier since employees also have a significant $ value of shareholdings
yes this is an outlier in every other industry that employs people for wages
lets talk about stock grants, yes, stock grants are dollar denominated and vest. If you get a $100K stock grant that vests over 4 years for a stock currently worth $10, then you have 10,000 shares. The stock goes up to $70 and you still have 10,000 shares, and some of that growth was from buy backs, then your $700,000 isn't negligible at all.
I just described Square.
Industrial Bank is #20 at $144k. That means that unless you work at one of the 20 companies on that list, your company is making less than $144k in earnings per employee. That profit is then taxed, and only a fraction of that is returned to shareholders, with the rest re-invested in the business.
So there's no way it's often hundreds of thousands.
What say we split the profits, 50/50? Doesn't sound fair, huh... well, what number would you consider fair?
Are you sure?