See this:
https://www.theguardian.com/business/2018/aug/16/ceo-versus-...
I quote: "The 2017 CEO-to-worker compensation ratio of 312-to-1 was far greater than the 20-to-1 ratio in 1965, and more than five times greater than the 58-to-1 ratio in 1989"
CEO salaries today are still about 20-1, depending on the business. For instance:
- Doug McMillon of Walmart makes $1.2 million in salary.
- James Quincy of Coca-Cola makes $1.5 million in salary.
- JPMorgan's CEO Jamie Dimon has a $1.5 million salary.
- Sundar Pichai of Google makes $2 million in salary.
You only get 312-1 by adding in performance based stock and incentive alignment options. But these don't come from the cashflow of the business like wages and salary. They come from diluting Wall Street. Knowing this, the whole thing is way less of an outrage. The comparison is so uneducated.
If there is outrage over CEO pay, it doesn't make sense to come from the unions or left politicians, it should be coming from activist hedge fund billionaires, which it does. Carl Icahn for example is wildly against this level of CEO compensation because it dilutes his ownership.
John Doe on his forklift stacking pallets in the Coca Cola factory is not made poorer over excessive CEO pay. Carl Icahn is.
Additionally, your comment leaves out the golden parachute CEOs often have, which is orders of magnitude greater than most severance packages, if there's even a severance package in place. Financially, it's pretty hard to fail as a CEO of just about any public company; even in failure, you profit considerably.
Yes, getting into the weeds is valuable, but here we're talking about the money in your bank at the end of the day, and that CEO salaries haven't changed much doesn't say anything.
Yes, a CEO should be making more money than the average employee. The debate is over how much -- why do CEOs get absolutely massive bonuses and golden parachutes and stock options and for employees it's expected that you put in the work in the hope of future recompense in terms of bonuses, promotions, etc.
Because their decisions can drive a company into bankruptcy or transform it into a trillion dollar company. Your average line employee has no such leverage from their actions.
Take a scan down the Fortune 500 and put a star next to each one you think has had 'exemplary leadership' rather than 'competent administration' or 're-arranging deck chairs while the titanic burns'.
The CEO of eBay got busted sending bloody pig masks to people who left bad reviews on the internet, for god's sake. These people aren't a higher plane of being.
But also, the board makes CEO decisions, and it's not totally uncommon for board members to also be CEOs of other companies, so they buy the kool-aid because they also benefit from it.
Plus, CEOs and boards don't exist in a vacuum. You've got to keep up with the Joneses if you think you're letting a good candidate get away.
To a first approximation, there are no non-stockholders.
One real question is why, when stockholders vote on CEO compensation, fund managers are allowed to cast the votes of fund investors. If you invest money on behalf of other people, there are all sorts of fiduciary duties to keep the money separate, but that money gets you votes, and you get to vote them according to your personal preferences, not according to the preferences of your investors.
Good company, bad company, the CEO compensation won't drive the stock price. It's still grotesque and unnecessary, you could pay half or less and get the same mediocre result in most cases.
2) I lied, I don't avoid eBay. I buy the same index funds as everyone else. Shareholder activism is a myth right now unless you're one of a very few people controlling in actuality a very small % of the market.
Compared to Steve Jobs, Cook is milquetoast. He's fantastic at supply chain management, and milking existing products/services. He's exactly what stockholders have wanted for a CEO after the Jobs died. Someone to basically do the same thing for decades. Milk the iPhone for all it's worth.
Yes, I know he's introduce the Watch and AirPods. But he also introduced the HomePod. He's no tech visionary, and eventually his value will drop and Apple will need a new leader. But for now, he's warming the seat.
I'm an Apple shareholder since before Cook, and admit I was skeptical about Cook. But as a shareholder I'm very happy with Cook's leadership. If his compensation is $$$$, that's cool with me.
BTW, Jobs was a visionary, sure. But that wasn't enough - he nearly wrecked Apple through mismanagement. Next Inc. bombed due to his mismanagement as well. But Jobs learned how to run a company with his management of Pixar, and then returned to Apple as still a visionary, but with management competence.
But hey, I might be wrong. Let us know how your shorts on Apple are working out.
I'm sure Apple shareholders are happy with Cook's leadership. AAPL has done very very well in the last 20 years. But is that due to Cook, or is that inherent in being CEO of a company that created the iPhone? Would Scott Forstall have been as effective in driving the stock price higher had Tim stayed as COO?
Imagine Apple today without the iPhone. It would still be a 2nd tier personal computer manufacturer with a recognizable design aesthetic. But everything that makes Apple the trillion dollar gorilla stems from the iPhone. Not only the outsized profits from selling 200m units a year, but without the iPhone, there's no iPad. No watch (same cpu designs). And no M1 Macs to boost sales to 2x the previous year. All stemming from a bet Apple made in 2004.
That's called insider trading and those who do that ends up in jail or at best have to hide in the sun for the rest of their life.
https://arstechnica.com/information-technology/2018/01/intel...
The article also cites Equifax's CEO selling before the news of their data breach went public.
And that's just the ones that are prominent enough that everybody knows about it.
Official resignation letter:
https://blog.waymo.com/2021/04/capstone-of-my-career-email-f...
"Interpreted" letter:
https://gist.github.com/ChuckM/ff5fc8c800c7fe9160483b68ec45a...
Because employees generally hated profit sharing and created unions to fight against it. Joseph Blasi talks about this in his book The Citizens Share. And it's not like he's some crank conservative, he's the economic advisor for Elizabeth Warren.
[0] https://www.theverge.com/2018/10/3/17934194/amazon-minimum-w...
And amazon is using that fact to justify lowering total compensation for hourly workers, so I don't think they actually do have an incentive to give RSUs in this case
The problem is that a lot of people will spend their surplus cash on more consumer goods rather than rather than investing it their 401ks.
By number, most of Amazon’s employees are working minimum wage and probably don’t have much of a balance. Many of them might get evicted if pay gets delayed even a couple weeks.
Amazon is probably a safer bet.
It's the same thing as top athletes getting contracts paying them millions of dollars whether or not they continue to win games.
I know in the NFL, a lot of those contracts have clauses big enough to drive a dump truck through. Many of those million dollar football contracts are back loaded to only pay out if the athlete competes the full term [0]. Winning and losing games is definitely tied to whether they stay or are cut.
Unlike a CEO, a poor performing athlete has no golden parachute to fall back to.
[0] https://www.pff.com/news/nfl-salary-cap-terms-tricks-to-know...
Athlete contracts on the other hand are fixed. If the athlete does well the team organization gains the benefit. If the athlete does poorly the athlete may be fired or transferred. And there is no gold parachute when they are cut.
So I don't recognize the similarities between CEO and pro athlete compensation at all.
Athlete pay (at least for athletes who are paid by an owner and not mostly from prize money) isn't really tied to winning or losing, but is largely defined by collectively bargained negotiations, based on how much the league brings in. You also have guys like Bryce Harper who, even when he goes 0-for-3, will earn their keep in other ways, like getting people to watch games on TV which increases rights fees & ad rates, selling tickets to games where people spend money on parking and beer or jersey sales: https://www.mlb.com/news/bryce-harper-sets-pro-sports-jersey...
In short, athletes get paid a lot because they know how much money their bosses are making from their labor and have collectively bargained to get their fair share.
This is correct, but the post you're replying to has the answer: CEOs successfully claimed more of the portion of surplus value which was going to stockholders, employees claimed less.
It's key to analyze these things if the goal is to see employees better rewarded, as they should be, but it must start from the correct analysis.
The details of how to do this are way over my head, and I won't embarrass myself by trying to make suggestions here.
Some people here also pointed out that Amazon would rather pay RSU, but people prefer cash. We all know that Amazon outperformed the market in the last couple of years and that the RSU would have been more valuable than cash, but even with the benefit of that hindsight, most warehouse workers would still pick cash because they don't have the privilege of making long-term investments. The sad reality of today's society is that it's not that hard to make profitable long-term investments (just look at pretty much anyone's 401k) - but for the majority of the population, they just don't have enough money to put it to work.
No, there are references stating that CEOs get exceptionally high equity comp in addition to exceptionally high cash comp.
Win on the carousel, don't lose on the swings. They've set it up so they can't lose.
Union membership is much higher in public institutions (I personally have some issues with that but it's a digression) which probably un-ironically are known to be relatively stable and well paid.
And yet, workforces continually vote against unionization while these debates about pay abound. Maybe it's just the vocal minority, but I don't quite get it.
Why do they vast majority of those benefits go to top executives?
For better or worse, the data presented in the parent post indicate that the market seems to be increasingly siding with the CEO-side of the above argument. I am not really sure that there's a simple regulatory move that would negate that (eg: you can cap salaries, but CEOs make most of their money from stocks. You might be able to cap how much stock a hired CEO can own, but most of the wealthiest people like Bezos and Zuck are founders).
And a pragmatism can say that all kinds of CEOs have driven companies to the ground, reducing their valuation even 1/10 what it was, and destroying their market share, and walked away just fine, with golden parachutes and even bonuses...
CEOs get more because CEOs get to determine what they get (and the board members and execs rub each other's back when it comes to their collective advantages).
It has little to do with performance and "whoever is responsible for the success of the company".
Imagine a company starting out. If they need you to join or they fail, and they can get you for 1% of the company, that founder is rewarded incredibly for securing you with very minor cost to the company, making them rich and you not, even if you are responsible for the success of the company. The reason being: if you’re so integral why didn’t you start your own company and keep all the equity? Why didn’t you bargain for more?
Capitalism doesn’t make any prescriptions about what should happen, it’s just a system where individuals make consensual transactions and the chips fall where they do.
In the above scenario, whether the founder “deserved” to be rich or not doesn’t matter, because you “made” them rich with your consensual transaction. As long as we are all free to be the founders or the employees, I don’t see why there should be some moral issue there. If your effort is worth more to others, either you need to haggle harder, start your own company, or you’re lying to yourself.
Everyone is a stock in capitalism, that’s all that is true. Everyone sets the value of each other’s labor and capital. If your stock isn’t doing so hot it’s because others aren’t buying it.
Markets are just markets, not oracles of unbiased merit. Making whatever the market does morally normative as you're doing is frankly, evil. They're useful tools, but that is all. They should not be a religion.
Anybody, as long as they had a westernized upbringing, access to computers and education, and a middle class or higher status in their country...
They certainly shouldn’t be a religion, but they aren’t just “useful tools”. Not infringing on people’s freedom to make consensual decisions should be the default, not some “tool” we “allow” because it’s “useful”.
This isn’t about worshipping capitalism or markets, this about the fact that preserving individual freedom necessarily results in free markets. The core ideal is individual freedom - which is moral - free markets are just the byproduct.
But we're not. Much of it comes down to the simple lottery of the circumstances into which you were born.
If you have an inherited trust fund, or wealthy parents and friends to fall back on, you can take huge risks, one of which might eventually lead to a multi-million dollar payout even if several of them fail dismally in the meantime.
But if keeping a roof over your head and putting food on the table today is dependent on working two backbreaking jobs today and every day, you're not "free" to be a founder.
"To them that have, more shall be given."
The things I got from my parents are things many people have had - some of which; such as help buying a terrible beat up old ‘78 Dodge Van to move states to my first real job, or a relentless drive to get better, to DO better, a great many people have had. I’ve also been lucky to get into the industry when someone motivated but without credentials could get started.
I’ve had zero money from them since I started working at 16, and before that it was a minimal allowance I earned through hard work with chores. I earned the $200 to buy my first computer digging holes and repairing fences.
Don’t buy into the myth it’s not possible. It’s self defeating. Also, don’t buy into the myth it’s easy for anyone - even those from money. It will test you like nothing else will, and I’be done enough hard things over the year to know
But more importantly, in other businesses this type of comp is certainly offered. If you work in a small startup in any position, you probably get stock options, because your performance on a 10 or 20 person team probably does have real noticeable and measurable impact on the business's success.
A counter-perspective would be that John Doe becomes incentivized to improve efficiency and innovate in the process. People are not machines or primitive animals. Humans are capable of creative problem-solving.
Note: stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back.
While pedantically true, in reality this is generally not the case. As long as you are still employed by the company that granted you the options, you do not have to exercise them ('invest') until you wish to sell them. What this means in practice is that nary a single dollar ever comes out of your pocket.
I think that's the key, which makes them fundamentally different. So, in the _very_ narrow scenario in which you happen to join a company that will IPO and that you're there from pre-IPO until post-IPO, yes -- they're nearly the same; you really just benefit from the difference of the strike price and public price. If you've spent time at the company, vested your options, and want to leave for just about any reason, it's nothing at all the same. I posit that a vast majority of startup departures fall under the latter scenario.
But the best-case percentage improvement in the overall company bottom line due to his innovations as a fork lift driver is still very, very small. To make it bigger, John Doe needs to stop being a fork lift driver and move to some other position with more leverage. And a person who really does have the ability to "improve efficiency and innovate" enough to make investors notice is probably better off quitting their current job and starting a startup.
> stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back.
My experience is that virtually all employees of large corporations who get stock options exercise them for direct cash, meaning they never actually own the stock; they "buy" it and then "sell" it immediately and take the cash (in practice whatever financial institution is running the company's stock option program does all this automatically and just sends the employee a check and a 1099 form for when they file their taxes). So virtually no employees actually take the opportunity to invest in the company. They just take the additional immediate income.
Depends on whether you count sharing his "this is a better way to use a fork-lift" around the company as best-practice as being due to his innovation or due to the manager who made it best practice.
If you count that as his innovation, then it isn't small if there are a lot of other people doing his job. If Amazon could use fork-lifts in their warehouses 10% more efficiently, they'd save an enormous amount of money.
As a technicality that's true, but irrelevant in practice. Employees receiving options are nearly always going to do a same day sale where the option is excercised and immediately sold and you get the difference. No need to put any money in.
Stock options and shares are pretty much equivalent. If the stock price goes up the option goes up (by a ratio). You don’t have to put your own money in, i.e you get 100 options every quarter, you sell 50 of them to get the money to exercise the other 50.
And lose the opportunity at longer-term gains for the ability to afford the short-term cost. They're really not equivalent at all. I know they're billed that way, but there are very real reasons startups forgo IPO for so long and remain on the options track in the meantime. Startups can offer stocks and often choose not to.
Also wages don't always come from cashflow. Amazon lost money for its first X years. Salaries and everything else were covered by investor cash.
Second, there is something not to forget about the stocks:
It is a "right" to the proportional part of all the future financial results of the company.
.
So, let's forget about inflation and consider equivalent dollars:
Imagine you have a 30 employees company, that will generate 1000$ of income. Of these 1000$, there is a 50% margin, so it remains 500$ of benefit.
.
In 1965:
- Boss will have a salary of 200$
- 30 employees total wages of 300$ (so 10$ per person)
- Net result of 0$ (total of stocks, going to the boss anyway)
.
In 2017, same company and conditions:
- Boss will have a salary of 50$
- 30 employees total wages of 19,23$ (so 0,64$ per person)
- Net result of 430,77$
The net result belongs to Boss + other shareholders.
-> boss get: 150$
-> other shareholders get: 280,77$
(So in result 200$ for the boss, 0,64$ per employee, 312-1 ratio)
.
Some people will say that the stocks value, based on valuation, does not correspond to 1 year of revenue. So, for example a 100$ stocks might correspond to an expectation of 10 years of 10$ benefit.
But, on the previous article the 312-1 ratio corresponds to a year compensation, that is repeated every year. So it means that as a boss, you will also get new stocks or bigger capital for your stock every year to have this ratio maintained.
A problem is defined as something that has a negative impact on people. My analysis points out that the only people that modern CEO pay has a negative impact on is the shareholders.
I illustrated that it makes literally no difference to your average floor worker whether the CEO gets $0 or $20 million in stock comp.
Money is money. If the business used to have it and now the CEO has it then the business gave it to him.
There's no class of equity that wasn't originally created and owned by the business so that's where the money comes from.
And lest there be any confusion, all the companies we're talking about do massive stock buy backs so it's not even hypothetical, they spend billions of dollars to prop up the price of stocks and the executives get it.
Both stock comp and cash comp are the same from the shareholders view. They are not the same from the employees view. A higher cash comp for CEOs may well result in lower employee pay, a higher stock comp will not.
Why? The whole point of publicly traded stock is that it's, like traded, in public. That means it's freely exchanged for cash in a matter of seconds.
If the company can use it to compensate one person it can use it to compensate another person.
What's your theory here, is it that the company has a resource that can generate compensation without any consequence to the company's finances, but it's only possible to give that compensation to certain people?
Scenario 1: CEO get paid $50 million in stock. Scenario 2: CEO get paid $50 million in cash. And then the company raise $50 million from stock market, so that it will have the same amount of cash as scenario 1.
They are the same.
Either way, the employee is not made worse off because the CEO collects a fat stack of options at the expense of the shareholder.
Of course the employees are made worse off by that: If the shareholders didn't give all that money to the CEO, they could give it to the other employees in stead and be no worse off themselves. The CEO uses up all the available potential for employee compensation at the expense of everyone else.
Your thesis is just astonishingly weird.
Base salaries are not significant to the discussion. Sometime high profile CEOs make $1 salary.
What matters it the total comp, just as with any employee. Some FAANG engineers might make $175K in base salary but total comp is over 1M.
What you clearly have here is a principal/agent problem.
The way it works is like this:
1) Money is invested in companies by a diffuse set of investors. That diffuse group is unified by people responsible for managing money.
2) They invest it with the intention of having it go into the productive activities of a business, such as staff and plant and equipment or technology or software or marketing. That money when received by the business is managed by the company management.
3) What is actually happening is that each of these gatekeepers is taking as much as they can get away with. It really isn't all that much more complicated than that.
They'll concoct increasingly complex rationalizations and call it "performance" and launch decades of public relations (like the article we're all commenting on) but at the end of the day the people who should be tasked with fairly apportioning resources in a common enterprise are taking more and more of it for themselves.
The solution is to stop letting them get away with it.
In 1965 employees also typically got pensions, the value of which is not counted in those figures.
One doesn't have to be a shareholder or even a direct stakeholder in a specific company to claim the right to outrage over this growing inequality in pay.
If you think nobody is getting hurt by it, it's not a problem, it's just envy.
The distinction between salary and bonus compensation is irrelevant outside of possibly some minor tax impacts.
>the companies themselves are more valuable, because newly founded companies grow faster than they used to.
The added reliance on stock-based compensation combined with higher valuations leads to higher CEO salaries.
This isn't making a case one way or the other about whether this is a fair or sustainable model, just meant to bolster your point about why greater context is needed when discussing executive salaries as a multiple of the individual employee.
How are these different? If the business pays its employees $X more, that money doesn't just appear out of nowhere. It comes out of other areas of the business -- such as capex, M&A, or retained profits. All of these things contribute directly to the value of the shares held by Wall Street, whether directly (in the case of a dividend or share buyback) or indirectly by growing the business. Likewise, dilution means that an existing shareholder benefits less from $X worth of these things, and therefore should demand an increase in X (or a reduced stock price).
It's all money either way, and money is fungible.
Either you don't think modern CEO pay is a problem, or you think it's a problem because it makes shareholders poorer. It doesn't impact the rest of the employees or reduce their incomes.
I honestly think the Ayn Rand crowd are missing a few circuits. Well, that's a crude way of putting it, but let's just say it's like color blindness but for ethics. No amount of oratory will make a color-blind person see red. And that's just the way it is.
Those "circuits" play an important role in regulating how groups behave. Lacking them, you open the door for extremely bad things to happen. This is why libertarianism and related ideologies should be treated with extreme caution at best.
The fact that you appear to be completely blind to the third option - the actual issue - is far more telling than any argument you've made so far.
I'll admit I had to look fairly hard to find where he did, but he did in fact answer that. (Not saying that I necessarily agree with his answer, but he gave it. Refute it rather than saying he's dodging answering.)
The outrage is why all that dilution goes to the CEO. Options can be granted to all employees more fairly than common these days.
This distinction doesn’t make sense. Cash and stock are fungible for a public company.
Yes, until the company offers a stock buyback (which these companies collectively spent more than 50 billion on in 2020)
Hypothetically, a company could pay 100M in stock to the CEO, and then issue 100M in stock buybacks to the CEO. This is functionally equivalent to paying the CEO 100M, but it wouldn't count in your salary numbers. And notably, both of these, stock buybacks and CEO pay, dilute wallstreet in the same way. But neither benefits employees.
To use the JP morgan example, (and this is roughly equivalent for Google), the company could stop stock buybacks, and instead pay every employee an additional $150,000.
That results in the CEO and wall street getting less money, and employees getting more.
Walmart and Coke modulate the share price in other ways, so stock buybacks won't tell a particularly interesting story.
Thus CEO pay is absolutely the concern of workers, unions, and union supported politicians.
There was a lot more air travel in 2010 compared to 1970. The 5 deadliest flights makes up a much smaller portion of all flights in 2010 than it did in 1970. It's a misleading comparison. You should instead look at the number of deaths per passenger or per passenger mile.
You have to think of the same point when looking at the "top 350 companies in the USA in 1965 vs 2017".
Are the companies the same size in 2017? Do CEOs have the same amount of responsibility in 2017? Is the complexity of managing the company the same in 2017 as it was in 1965? What percentage of all companies do these top 350 make up?
These are all factors you might want to take into account when looking at a specific number of top companies.
I'd be curious to know what the numbers would look like if they looked at the top 1% or top 0.1% of companies in the US instead. Or perhaps even the average and median companies. My guess is that those stats wouldn't be politically as useful. I imagine that you'd still see a growing disparity, but a smaller one.
There seems to be a lot of contradictory academic claims about CEO compensation so I thought referencing a meta-analysis would be the most useful[1]. If company size is a proxy for your complexity claim, that seems to be much more informative regarding executive pay. Actual company performance was only about 5% predictive, compared to 40% for firm size. It seems like the heuristic I've heard about the "best way to get a raise is to grow your department not necessarily grow your profit" may have a seed of truth to it.
[1]https://www.researchgate.net/profile/Steve-Werner-3/publicat...
If you run a company that's 10 times as big, why is it surprising that you're getting 10 times the compensation? You'd need to compare to similarly sized companies today. Instead, they look at the top 350 companies now and then.
Sure, a bunch of sources linked here.
https://piie.com/blogs/realtime-economic-issues-watch/growin... this is linked there and goes through how the data looks if you correct for all the issues.
The top google hit for the "myth" is "Debunking a Myth in 1 Chart: Wage & Productivity Growth" [2] from the American Action Forum, a conservative think tank affiliated with a conservative, Republican advocacy group [3]. Basically it claims the original report compared data that aren't comparable. There's also "Why the gap between worker pay and productivity might be a myth" [4] from the American Enterprise Institute, a conservative think tank [5].
I didn't read them closely but part of the methodology in the AEI article used salary and benefits instead of just salary to draw a compensation line closer to productivity. Given that health care is such a huge part of the cost of those benefits, maybe the claim should be that company shareholders are sharing the wealth with workers but that health care costs are so out of control it's eating up all the workers' gains.
EPI response to criticisms, "Understanding the Historic Divergence Between Productivity and a Typical Worker’s Pay" [6].
[0] https://www.epi.org/productivity-pay-gap/ [1] https://en.wikipedia.org/wiki/Economic_Policy_Institute [2] https://www.americanactionforum.org/insight/debunking-a-myth... [3] https://en.wikipedia.org/wiki/American_Action_Network [4] https://www.aei.org/economics/political-economy/the-decline-... [5] https://en.wikipedia.org/wiki/American_Enterprise_Institute [6] https://www.epi.org/publication/understanding-the-historic-d...
There's never been any such thing. In the US, salaries have always been determined by the supply and demand of skills, they've never been linked to profitability or some share of it.
And stock options and stock grants are relatively new (not really a thing in 1960), so if anything the actual employee share of profits -- since the value of stock is future profits discounted -- has gone up.
The idea that CEO compensation is somehow "at the expense of" employee compensation is a pure myth. If CEO's were paid less, the extra money would flow to shareholders, not employees.
Here's my intuition on that:
- it doesn't answer how much of the wealth was created (endogenous) or taken (zero sum): tech companies can simultaneously induce new demand and preferences while replacing older companies
- it doesn't answer whether the average worker or society as a whole is better or worse with a lower or higher compensation ratio, because by averaging you lose nuance; for example, are more or less people employed by tech companies now then by the companies that were replaced? are the worker salaries themselves higher or lower compared previous worker salaries?
For me, higher compensation ratios in _tech_ companies is good for people in tech: tech requires less labor for inch of market cap, while that labor is compensated higher. Whether or not that's an overall good for society though, idk.
Second, pg is talking about the Forbes 100 where the founders of tech companies are represented. The founders didn't get their stock by being granted it as compensation in stock options, they got it by virtue of founding the company. Whatever they have left, they have because that's what they were able to keep and not sell or get diluted.
For example, Bezos' wealth is mostly due to the fact that he owns ~13% of Amazon. He didn't get that as CEO compensation, he got it by founding the company.
It's pretty clear that a new class of people (founders, VCs and people close to them) are capturing a larger part of the resources today while the majority gets a decreasing share of that. And we should all be working at finding way to reverse that trend.
That is why thinking purely in financial terms is misleading. It's not because everyone has more $$$ in the bank that everyone is better off.
The real issue is that tech/startup founders and workers who, while less rich, accumulate more wealth at scale compare to the rest of society. And given their number, I'm afraid this will have a real impact by greatly increasing inequality. That would be ok if the other part of the population would also be able to live better. But I do not think it will be the case.
Btw: I am a tech founder.
This isn't just relegated to billionaires. Depending on how you define "consumption", up to 70% of the U.S. economy is consumer driven. Now I wouldn't call all this "unproductive" but it's probably selectively unfair to claim only the uber-rich are spending money on items they don't need.
Google, Microsoft, Twitter, Netflix, etc., are enormously valued and none of it is based on bounded resources.
People made rich by Google will absolutely be able to redirect more resources to themselves in a world of bounded resources.
I think a lot of founders are idealistic about it and refuse to believe that at scale the start up mentality will increase inequalities. That's PG's point acutally, see the last sentence of his essay: it will. But he doesn't care. I do.
E.g., did Broadcast.com really create nearly $6B in value just because that's what it was speculatively valued at when purchased? I'd argue no, unless you think the "greater fool theory" is the correct way to measure value rather than intrinsic worth.
No, it can't. It can only be guessed at. Everybody knows that "book" value isn't terribly reliable.
> Value investors have in fact gotten rich
Here's a simple test for your theory. You're sure you're right. If so, you have invested in "undervalued" stocks and gotten rich. If you haven't invested based on your theory, are you sure you're right?
As for me, I invest my money where my mouth is.
I’d also avoid absolute terms like “everybody”, “always”, etc. because they’re easily falsifiable
But I do suggest caution. A strategy that works for 3 years may not play out well over 10, 20, 30 years.
Yeah, I know I wrote "everybody knows". I meant "it is generally known".
I got hammered really hard by the 2000 crash. Down something like 75%. I thought I was smart by not investing in bubble stocks. But the secondary die-off caught me. It was a bitter pill.