Uncertain America

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Erik Kain

Erik writes about video games at Forbes and politics at Mother Jones. He's the contributor of The League though he hasn't written much here lately. He can be found occasionally composing 140 character cultural analysis on Twitter.

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22 Responses

  1. Avatar John Henry
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    says:

    Why don’t more public companies give stock options to their employees? Why isn’t this more common? Why don’t we replace health care as the employee benefit with stock in the company itself?

    One reason is that most employees wouldn’t want that. Personally, I’d rather take money from the company, and use it to invest a portfolio of companies in order to limit my risk. After all, my economic livelihood is already tied up with my employer – I’m already over-exposed to fluctuations in their business. I’d rather my retirement and long-term investments weren’t bound up with the exact same company. All eggs in one basket, and all that.Report

  2. Avatar gregiank
    Ignored
    says:

    Well its a heckava lot harder to dump jobs if workers are stock holders. Also workers, if they are stock holders, will want their pensions, if they have them, to be fully funded and not dumped just to boost stock prices. Also workers tend to be a bit more critical of excessive exec compensation and letting the big swinging dicks do whatever they want at the expense of the company. I think workers would get somewhat cranky at closing a factory in America to send jobs off shore or as part of some LBO or scheme to increase the short term value of stock options.

    Erik, i don’t often say they this. But this post is pretty damn naive. The trend over the last 30 years is towards treating workers poorly, dumping as many as possible ( which may actually be the correct more in some cases), cutting benefits, using layoffs and bailing on retirements funds as a way of buying out other companies or making wall street happy. Workers get in the way of all that.Report

    • Avatar Aaron in reply to gregiank
      Ignored
      says:

      @gregiank, I think this is largely right. Giving employees stock in the company implies a lot longer-term relationship with the employee in question than I think most modern companies are comfortable admitting. You’ll have a lot harder time firing worker-owners than just some group of people.

      That being said, I think the idea of employee ownership of corporations is a fantastic idea. But Gregiank is right, it’s going to make 500x compensation for the CEOs a bit harder to get past the stockholders.Report

      • Avatar North in reply to Aaron
        Ignored
        says:

        @Aaron, All that implies that stockholders would pay attention. The vast majority of voting stock would continue to be held passively by mutual funds, pensions and other holders that simply voter with management and thus with the active voting shares neutralized by the ennui of the majority the board of directors/managers would be free to continue to run amok.Report

        • Avatar Lyle in reply to North
          Ignored
          says:

          @North, If stockholders actually had a say in companies. Until recently it took only one vote to be elected a director, since you could not vote no, just withhold. Recently the concept of you have to get a majority has taken hold. Second a group of shareholders should be able to nominate directors on the corporate proxy, so there is a real contest, not like today where unless you have deep pockets the board continues on its merry way. Third make say on pay mandatory so that for the to 20 execs shareholders can reduce comp say 50 % by vote. Then have the SEC sue a few mutual funds for not following fiduciary duty to their holders in their votes to get the funds attention, at least now the votes of institutions are required to be reported. To go with this put a fiduciary duty on the 401k admin to find the best deal for those who contribute as the only allowable criteria. (This means that they could get sued if they retaliated against a fund that voted against their managment)Report

  3. Avatar PD Shaw
    Ignored
    says:

    Weren’t employee stock options at Enron a big source of hardship for employees who weren’t diversified when it collapsed? For working class families, this seems like it increases risk and uncertainty for people without the ability to participate in the management decisions that effect that risk.Report

  4. Avatar Maxwell James
    Ignored
    says:

    There is some evidence – not a ton, but some – that employee owned firms outperform their peers in terms of sales, productivity, and employee benefits.

    While ESOPs and other forms of equity compensation have their downsides, it would be worthwhile to look for small-bore ways to encourage their development. Speaking as someone who intends to start a business one day, I would definitely look at a model with a strong employee ownership component (Assuming I have employees, that is).Report

  5. Avatar North
    Ignored
    says:

    All I know is that reform is needed desperately on the share holder level of corporate law. The interests of corporate management and corporate shareholders are often not in line but the former is favored over the latter. I honestly am unsure what the solution is, however.Report

  6. Avatar Simon K
    Ignored
    says:

    Stock options only work well as an incentive where the employee has a chance of influencing the company’s success. I now work for a start-up company and my stock is a big motivator, because I can see the impact my work has on the (admittedly low) prospect of it ever being worth real money. But when I worked for a much larger company the stock was really just a random element – totally useless employees made very large amounts of money. People who’d really made a contribution made nothing because their stock vested after the management (whose stock of course was vested already) got caught channel stuffing.

    Of course the option pool is never big enough to give non-founder employees any actual control – combined they usually own significantly less than even the smallest investor. Actual employee ownership is a whole different ballgame from stock as an incentive. Quite a few mid-sized companies are partially or wholly employee owned, and presumably employee oversight of the management would prevent stock manipulation unless everyone stood to benefit equally from it (in which case its not really manipulation any more). But it does have its problems – employees naturally value their current compensation more than uncertain future returns from their shares, so they’re even more biased than managers towards under-investing. Plus if employee control is going to be maintained there need to be rules preventing employees selling shares – in many cases that means the shares are actually held in trust for the employees rather than actually assigned to them.Report

  7. Avatar Mike Farmer
    Ignored
    says:

    “And when it comes to uncertainty, all that matters is perception.”

    Actually, reality matters. Sometimes there can be uncertainty, when in fact there is no good reason to be uncertain, at least no more so than life’s general uncertainty. Then there are times when external factors create the uncertainty. There is good reason for uncertainty in business at this point. In times of unfounded uncertainty, thought leaders might be able to help instill confidence through inspirational messages. For instance, after 9/11, many people were shaken, but then the nation was inspired to carry on and not let fear cause a panic situation. The situation we have now is not amenable to inspiration, like Recovery Summer, because the changes are real and the spending is real and the probability of higher business costs is real. You can change perspective when people are uncertain for no legitimate reasons, or not very good reasons, but when uncertainty is based on real concerns regarding actions which are creating uncertainty the only thing that will change perception is for the reality creating the uncertainty to change.Report

  8. Avatar Robert Cheeks
    Ignored
    says:

    Obama’s a rather ingenious fellow. He’s hollowing out the American economy for a reason. Anyone miss Bush’s 4.5% unemployment? Maybe those looking for a job.Report

  9. Avatar Katherine
    Ignored
    says:

    Why don’t we replace health care as the employee benefit with stock in the company itself? Wouldn’t this go a long way toward making the American worker more of a capitalist themselves, more fully invested in the companies they work for? And while we’re at it, I think we should give shareholders more power over the boardroom decisions and the fate and salaries of executives.

    YES. I’d love to see that. (You do realize, though, that it’s essentially modern-day Marxism?) It give workers more power over the company, while also making them more invested in its success, and thus gives them more incentive to do their work well. The only problem I can see is that workers might not want shares, preferring the security of benefits to shares that might go down.Report

  10. Avatar Larry Signor
    Ignored
    says:

    I’m not sure how stock options relate to distributism. Corporate ownership may increase the number of capitalists, by definition, how it would be distributive is not at all clear. Simply transferring ownership of an existing enterprise is not distributive in a Chestertonian sense. There are no competitive advantages to the consumer since the enterprise is essentially identical except on paper. This would be distributism in a fiat sense only. We return again to Erik’s theory of allowing sanitary failure in our economy. Extreme size and too big to fail are counter-intuitive to distributism. Allowing failure would certainly be distributive. Government is not the only institution that needs to be decentralized.Report

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