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Comment by ottoboney | Hacker News Reader

I’m not sure I agree with you that equity compensation is only beneficial for C suite level people.

I think a lot of people in the Bay Area who work at large and small companies have benefited from rising stock prices and large amounts of their pay being equity. Look at the price of Apple stock over the last few years. Even a normal IC at Apple has made significantly more money due to their equity compensation being granted over 4 years.

There are also many people who have been normal IC level employees at companies like Snowflake who gained tremendous wealth by them going public and being paid in equity. Sure there are some losers, but I think over a large sample size employees generally win by being paid in equity vs the cash price at the time equivalent.

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> Even a normal IC at Apple has made significantly more money due to their equity compensation being granted over 4 years.

The equity compensation at Apple is ridiculous. For one they're super stingy with it. Thanks to the infestation of stack ranking only the top quintile or quartile of employees on any team (by whatever performance metric the manager decides upon) will get any RSUs. Upper management has no problem if all the RSUs allotted for a team go to only a single team member. There's a reason Apple really hates the idea of employees talking openly about compensation amongst themselves.

This is just hindsight bias. If these employees had been paid the equivalent additional amount in cash would you have suggested to them to invest all of it in their employer's stock?

Somewhat tangential but couldn't another term for “hindsight bias” be “learning from the past”?

No: the point of hindsight bias is that you’re able to make better decisions when you know how the future will go. Hindsight bias that those companies will all grow in that five year period doesn’t change the way you would decide if you should invest in your employers stock today.

You can approximate that with being paid more and buying company stock - but most would recommend NOT doing that. Pre-IPO stock options and grants are a separate discussion; I was thinking mainly of the equity portion of Google, Facebook, et al.

It ALSO allows them to "pay" people the same even though total comp may be very different, (this looks good on reports about pay equality) AND it allows them to institute pay cuts without ever having official pay cuts.

Having a portion of pay that automatically and transparently scales with company performance seems valuable and sensible. When the company outperforms expectations, the gains are shared. When it underperforms, the pain is shared.

The problem is that each individual employee generally has vanishingly small individual impact on the company's performance. That can really hurt morale when the stock price goes down, often even when the company is doing just fine, or even well.

IME, it doesn’t hurt morale worse than the company instituting broad-based salary cuts would, which is an alternative structure to accomplish a similar shared-success model.

My employer is making record profits every quarter and the share price is going down month after month. What shared success?

Share price is driven more by future expectations than by past performance. Your record profits are nice, but are history at this point.

What matters is expectations of profits going decades into the future and the relationship to the risk-free rate of return (which has risen dramatically recently, due to the expected future devaluation of the dollar).

That pretty well reinforces my point: share prices do not rise because employees have done a good job, profits do. RSUs are not, therefore a shared success model.

And explicit profit-sharing exists and is found in some companies; but rarely Silicon Valley ones. (They seem more common in factory/service companies)

Sure, but we're not talking about salary cuts or a shared-success model as the only possible alternative. Why not just do away with equity compensation or bonuses entirely, and pay people more?

(I mean, I know why; equity compensation is a much cheaper way for a company to compensate employees than extra salary or even bonuses.)

I think shared-success is a fair model (regardless of whether or not it's good for morale or productivity) when the company is small enough where you can at least somewhat understand how an individual employee's work contributes directly to revenue. But companies grow past that point, sometimes quickly.

Having said that, I think I made out very well with equity comp at my last company, much much better than I would have done if there was no equity comp, and we all just had higher salaries. But I think that outcome isn't common, especially when you only consider employees in non-executive positions.

The problem is stock price is often only loosely tied to "performance". Companies can be under- or over-valued by the market for many reasons.

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