If you work for a large public company, it's a fun exercise to add up all the money the corporation has spent on dividends & stock buybacks for the past year (such info is publicly available) then divide it by the number of employees. You often end up with a truly staggering amount, on the order of hundreds of thousands of dollars per employee per year. Some might object to such extravagant handouts to people who (by a vast, vast majority) played no part in the creation of that wealth.
You have to step back a few links in the chain to see the error here.
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.
>You have to step back a few links in the chain to see the error here.
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.
the sheer size of the value extraction from employees
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?
"sheer size of the value extraction from employees"
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.
To amplify that, I know many people who were very successful working at BigCorp. They resigned and started/joined a small company doing the same thing.
They failed miserably.
Never underestimate the value of the backing, resources and organization of BigCorp to one's success.
>It is incorrect to assert that the employees are creating all the value created by a company.
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.
My apologies if I misunderstood, but your use of the term "extraction" implied (to me at least) that money accruing to shareholders was being taken out of value produced solely by employees.
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.
> Some might object to such extravagant handouts to people who (by a vast, vast majority) played no part in the creation of that wealth
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.
If you're working for a large public company, stock grants are dollar-denominated. Say you're given a sizeable stock bonus, $100k. How much of a benefit do you get from stock dividends & buybacks with that quantity of stock? A few thousand dollars per year, at most. Negligible compared to the per-employee dividend & stock buyback number.
stock grants and stock bonuses are very different. you are conflating issues.
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.
You can calculate approximately how much of that growth was from buybacks, because it is near the same as if the company had spent the money on dividends instead except the money was rolled into the stock price instead of disbursed. So again, not very much. Stock grants vs bonuses is irrelevant other than that you are forced to hold grants for longer. Also irrelevant is how much the price has appreciated due to other factors. Are you certain it isn't yourself who is conflating issues?
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.
Sometimes the full debt is not repaid. In that case the money comes from the lenders and bond-holders and they never get it back. And the shareholders also lose everything in that scenario, of course.
Providing capital doesn't play a major part of wealth creation? Like it carries no risk and deserves no reward, and isn't the fundamental thing that allowed the wealth to be generated in the first place?
I wish it were that simple but I find your analysis highly flawed. The early employees, founders and investors risked a big chunk of their resources and hence played a huge part in the creation of the company and are all the beneficiaries of those buybacks assuming they stick around for that long.
