Precisely--and the article should have ended there. It's all about the risk. Arguing for the raw amount of contribution a chef can have is a distraction from the core point and detracts from it.
One thing I find weird about all of this (tangential tho) - When this article first made the rounds, many people defending the derisive attitude of towards the chef ("he's just a cook, he doesn't deserve it" type arguments) also make the opposite argument in opposition to unions ("why base pay and benefits on seniority rules rather than on actual skill and hard work"). It's a cognitive dissonance I feel would be interesting to explore.
Isn't that what happens at most restaurants? My brother works as a chef, and that seems like a pretty common pattern. 20 million dollar payouts are not, from what I gather.
I think the guy got lucky and they were generous/kind with him. Good for them as human beings, but I am not sure you can justify things in strictly "homo-economicus" terms. Hard to say without knowing if or how much of a pay cut he took to join them, though.
Is that what your saying?
If you compare salaries across jobs, no, it generally isn't, in economic terms, from what I know. That's not to knock chefs or say they aren't "worth" as much, because that's something of a loaded term with more than economic significance.
Of course, neither you nor I actually know the details of this guy, the market for his skills in that area at that time, or what his deal was with Google, so there's a lot of guessing.
How you assess the benefits/risks is a gamble every time, and some people play it safer (favouring stability) than others. How is the cook taking shares as part of his employment package (perhaps in lieu of a chunk of salary he might get elsewhere) any different to a national manager taking shares as part of his package?
Of course it could just have been the first half decent job that came along while he was out of work and he took it without much consideration, in that case he was just lucky rather than a lucky gambler. But there is nothing wrong with that either.
Granted, that the outcomes have a much higher standard deviation in startups is probably a no-brainer. But if the mean is less, then it's by-definition gambling.
I guess the question centers on, do the winners outweigh the losers. In Las Vegas, they do not. That's why they advertise the winners so much, to make it look like winning happens all the time. They don't advertise the churn. Given how much SV "advertises" its big exits, to me it feels more like Las Vegas than a career.
But to play devil's advocate (since I don't see many people arguing to the contrary), companies should factor in how easy it is to replace someone when they offer these sorts of deals. I think it's a valid argument to say that it is easier to replace a chef than to replace someone who can fix that bug before the demo next week. Regardless of who works harder, the gear-up time for an engineer is typically longer and the built-up institutional and domain knowledge are very valuable.
In other words, what is the best alternative to the negotiated agreement for the startup when it comes time to make an offer or negotiate a raise?
Edit:
A rash decision when replacing this person leads to almost immediate drop in revenue. I'd argue that it's more difficult (and stressful) to replace a head chef than it is a SWE.
While replacing the head chef of the company cafeteria doesn't directly reflect revenue like it does at a tip-top restaurant (for which Charlie is obviously qualified), it can have numerous side effects, many difficult to ascertain ahead of time (will the new one remember that a majority of people on staff have an aversion to yellow squash, for a brash and hyperbolic example?)
The actual occupation is a distraction, though. Replace chef with the guy that handing out fliers on the street. He's 100% replaceable. Does he deserve a million-dollar payout? Maybe. But I think it's fair to take that into consideration when evaluating compensation.
A company could be wrong that the chef is replaceable, but that's an empirical question. As a matter of evaluation, considering the value of the best alternative is 100% fair.
You don’t get to renegotiate the terms afterwards once you know where on the payout scale your company happened to fall (maybe you can legally, but then you’re an asshole).
“The guy who fixes the bug” isn’t worth $20M either. There are plenty of extremely competent engineers who you could hire for $300K that could also “fix the bug”. But you’re not paying him $20M; you’re paying him a smaller salary, plus a small percentage chance of the jackpot.
I actually agree with all of your points here, including the one about retroactively altering compensation. I'm just saying it's fair to take value-over-replacement into consideration when negotiating compensation. And that I can see giving different compensation based on that measure of market rates for labor.
Maybe the compensation was fair. Maybe it wasn't. Maybe it's important to clarify what counts as being paid. All of those things are really beside my point.
I pick the company that ends up taking off like a rocket and selling for gobs of money, and you pick the company that ends up running out of cash in 2 years. Our contributions to the businesses being equal, why do I deserve $5M in vested stock and you deserve to be unemployed?
Is this optimal? Is this the best way we've come up with to allocate wealth from entrepreneurship?
When a startup gives equity, they are doing it so they don't have to pay as much cash, since the cash is more valuable at the time. (Otherwise they would just issue more equity to pay the employees in cash)
As such, the chef is being given a lottery ticket in return for accepting a pay cut.
But it's also worth considering that there is softer forms of equity, especially in knowledge work, that likely accrues faster working at a successful company. In other words, when "investing in your career", picking good investments is important, regardless of how many shares you may walk away with.
In that way, even given two job offers with no equity, there are probably benefits to taking the job at the company most likely to succeed.
Imagine 2 scenarios for a corporate chef in San Francisco, who expects his next job to last 10 years: 1) He goes work at Safeway, and earns $60K. 2) He goes to work at Google, and earns $50K with a very high risk lottery ticket that has an NPV of $200K, or $20K/year. (Say 1 in 100 shot of getting $20 million, or use Black-Sholes on an option)
Who are we to begrudge him if #2 pays out? The company does it because it's better for them than getting more VC money to pay the extra $10K.
For the chef, it's a better deal than Vegas, Lotto, or the options market.
Once we agree on that, we can debate whether lotteries are a great way for our economic system to allocate wealth.
You still gain all of the experience of having helped start a company. you gained SOME monetary compensation. In the end, one person made the better decision (whether or not they knew it), and is being rewarded as such.
Anyone who takes a job takes the described risk. The cleaning personal does too. How would the place look like if it wasn't clean.
I don't mind him getting 20m. What i do mind is this naive idea of why people make the money they sometimes do.
He took no risk any other person going to work everyday didn't.
The support staff (tech support, office managers) keep coming to works as the CEO promises paychecks "by the end of this week". Its not like its trivial to find another similar job on a weeks notice, and living paycheck to paycheck has a paralyzing effect. An established company has far less risk for support staff.
Running a restaurant is like running a startup only you don't get to a point where it just runs itself. And with low margins it's most often not even a good business either. In fact the better quality the lower margin.
Talk about taking a risk.
I have no problem with the chef getting 20mio, what I have a problem with is the claim of risk as if he is risking anything anyone else isn't.
Your risks aren't minimum; they're different.
He obviously took enough risk that Google was willing to give him stock options. Google didn't make that offer to be nice. It was a business decision.
I'm siding with Google (and the chef) here. Because it didn't have the money at the time to pay him enough to fully offset the negatives (which may have been opportunity cost or long hours, not necessarily company-wide risk) it offered him stock. It wasn't being nice. That paid off handsomely for him.
You'd be right to argue that most working people are undercompensated for the suffering and the risk that they take on in their jobs. That, however, goes far beyond the Google chef. It's a systemic problem. As a society, we've failed to find anything within even a factor of 5 of a fair balance between capital and labor.
Again I have nothing against him making 20. Just don't claim that he somehow made a risk. He didn't and if that is the reason why someone should get stock then most people going to work every day should get stock.
He put capital (his time, not fully compensated) at risk.
then most people going to work every day should get stock.
Personally, I'd rather have it in salary. 0.05% of a 40-person company isn't going to motivate me worth shit. It has the opposite effect (uncanny valley). I'd much rather work for a hedge fund and be reasonably paid for my skills.
Unless it's substantial, equity is a bad sign for me. Why? Because 0.05% of a 40-person company ("checkbox equity") won't motivate me in the least, but it will motivate other people, which means I'm going to be competing (on hours, indignity, and suffering) against people who haven't done the math on their pathetic shares and are delusional and clueless. That's like wrestling a guy on PCP; it's better not to.
With that said I actually think stock options are a good incentive for all employees. It provides some reasonable guarantees on both parties. On the one hand the employee is given incentive to work hard because the more productive they are the better the company does and the better the stock does. Also it gives them something nice in case they get laid off and the stock goes up. Also the company sees those same benefits. The employee will probably work harder and more productive because they have more incentive to.
Early employees deserve their extra stock regardless of what they do.