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<blockquote data-quote="NotAYakk" data-source="post: 9219954" data-attributes="member: 72555"><p>Stock Options are transfers of wealth from the stock holders to the CEO at the instructions of the company.</p><p></p><p>You can definitely choose to transfer wealth from the stock holders to the employees instead of to the CEO in a way that has the same impact on Stock Holders that giving the CEO options would.</p><p></p><p>Now, would the CEO make the same decisions that they would if they got a huge bonus for making them?</p><p></p><p>If I give you an option to buy stock at prices 1 year ago every year, I have lots of incentive to do whatever it is I can to juke up the price of the stock when those options vest.</p><p></p><p>Suppose I have two choices. Choice 1 is an investment strategy that saves my coworkers and friends jobs, but has a long term payoff not an immediate one.</p><p></p><p>Choice 2 is a strategy that makes my books look better. Higher profits, lower costs.</p><p></p><p>Note that finding those long term benefits from Choice 1 is hard: you are 75% sure they exist, but on paper your company will look worse for the next 3 years (higher costs, lower profits).</p><p></p><p>Now offer that person 6 million dollars extra per year for 3 years for making Choice 2. Oh, and if they make Choice 1 and they are right and they are still CEO in 5 years, they get 25 million dollars.</p><p></p><p>Option based renumeration "align executive incentives with shareholder value", but it is value in the sense that the long term is a sequence of short terms.</p><p></p><p></p><p>CEOs pay is lottery type rewards. You have piles of people climbing the corporate ladder who see the C-suite reward and <em>consider it part of their incentives</em>.</p><p></p><p>Every dollar you pay a C-suite not only provides incentives to them, but to a pile of other people.</p><p></p><p>Second, you are going to ask them to do things like "fire your friends and coworkers", and if they won't you'll can them. High pay moves someone into a new social class, and aligns their view of the world with the owners of the company, not coworkers.</p><p></p><p>An entire system of boards and C-suites self perpetuates this culture. C-suite pay is set by boards inhabited by C-suite social class.</p><p></p><p>Imagine looking at a feudal society and saying "well, those nobles must be 100x more productive and useful than the serfs, otherwise the king would fire those expensive nobles and replace them with cheaper serfs!"</p><p></p><p>The nobles, earning lots of money, must exist in order to provide the king with people invested in shoring up the status quo. They don't have to be "worth" that money - the fact they are earning that money <em>is a requirement of the job</em>. If they didn't earn that money, they wouldn't be motivated to uphold the status quo. You could pick a different subset of the population and give them the same money, and so long as they where confident a revolution like it wouldn't happen again they would also do just fine as nobles.</p><p></p><p>Now, it does take a bit of time to train the noble in the stuff they need to do to maintain the status quo, but that is mostly a matter of preparation and culture, not talent or any such nonsense.</p></blockquote><p></p>
[QUOTE="NotAYakk, post: 9219954, member: 72555"] Stock Options are transfers of wealth from the stock holders to the CEO at the instructions of the company. You can definitely choose to transfer wealth from the stock holders to the employees instead of to the CEO in a way that has the same impact on Stock Holders that giving the CEO options would. Now, would the CEO make the same decisions that they would if they got a huge bonus for making them? If I give you an option to buy stock at prices 1 year ago every year, I have lots of incentive to do whatever it is I can to juke up the price of the stock when those options vest. Suppose I have two choices. Choice 1 is an investment strategy that saves my coworkers and friends jobs, but has a long term payoff not an immediate one. Choice 2 is a strategy that makes my books look better. Higher profits, lower costs. Note that finding those long term benefits from Choice 1 is hard: you are 75% sure they exist, but on paper your company will look worse for the next 3 years (higher costs, lower profits). Now offer that person 6 million dollars extra per year for 3 years for making Choice 2. Oh, and if they make Choice 1 and they are right and they are still CEO in 5 years, they get 25 million dollars. Option based renumeration "align executive incentives with shareholder value", but it is value in the sense that the long term is a sequence of short terms. CEOs pay is lottery type rewards. You have piles of people climbing the corporate ladder who see the C-suite reward and [I]consider it part of their incentives[/I]. Every dollar you pay a C-suite not only provides incentives to them, but to a pile of other people. Second, you are going to ask them to do things like "fire your friends and coworkers", and if they won't you'll can them. High pay moves someone into a new social class, and aligns their view of the world with the owners of the company, not coworkers. An entire system of boards and C-suites self perpetuates this culture. C-suite pay is set by boards inhabited by C-suite social class. Imagine looking at a feudal society and saying "well, those nobles must be 100x more productive and useful than the serfs, otherwise the king would fire those expensive nobles and replace them with cheaper serfs!" The nobles, earning lots of money, must exist in order to provide the king with people invested in shoring up the status quo. They don't have to be "worth" that money - the fact they are earning that money [I]is a requirement of the job[/I]. If they didn't earn that money, they wouldn't be motivated to uphold the status quo. You could pick a different subset of the population and give them the same money, and so long as they where confident a revolution like it wouldn't happen again they would also do just fine as nobles. Now, it does take a bit of time to train the noble in the stuff they need to do to maintain the status quo, but that is mostly a matter of preparation and culture, not talent or any such nonsense. [/QUOTE]
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