Remaking the Union model.

[JonesBones]

No. They're not taking start up risk, which is what we were talking about. Read the conversation starting with post #2.

People who buy on the secondary market are not sharing in the start up risk.

Well, the person you were responding to and made the thread made the same point I did. He must be confused too.

They are taking risks though. More than the employees.

 

[panamaican]

1) Everyone who buys Ownership whether at founding or later is sharing in the risk. If I buy a stock in a mature company today and that company loses money and the stock falls I have lost my Capital. You, the employees, want to rightly claim responsibility for the profits when the company is winning, then accept responsibility for the losses when it losses. When I buy stock I have no control. I am making an investment in you and what you represent to me as the employees, management and board as a team.

So no, no one should ever get one side of the ledger only. I only share in the wins but have no risk or share in the losses.

2) Amazon always did make a profit or margin before you looked at re-investment for growth, so I would accept some type of tie to that metric instead.

But i fundamentally say no to any tie to simply revenue. I've seen all sorts of businesses actually lose money at every level pouring mass amounts of investor capital in to try and build a market. Think Amazon but without the positive earnings before re-investment to growth. Its just a sink hole until it hits a certain volume level and it then it never gets there. Do the employees deserve a pay cheque along that rode, yes. Do they deserve something akin to a profit share, which is basically a success metric, for a company that has not achieved success and is just burning cash, largely on the employees themselves, hell no.

Rewards should only be doled out once the company is successful. Not just for trying. Especially if you are paying those rewards out of the investor capital, the same people already paying the salaries. Rewards come from the money coming in, not the money going out. A

1) But you're not sharing in the start up risk, which is what I said in my first post. The initial investors are the only ones who share in the risk of starting a new business and thus reap the rewards of bringing the idea to fruition. Everyone who buys on secondary market is buying into something that is already established and they're gambling on sustainability and growth. It's a different risk from that experienced by the founders. And in that sense, your secondary market investors are no more part of the initial risk class than your employees are. Neither group risked money to turn an idea into a company.

2) If you have a metric that the Union would accept that's fine. My point was simply that if you just say "profit" then the company can legitimately manipulate that number for any number of purposes that would harm the Union's profit sharing position while still benefiting the shareholders.

Gross takes that out of the conversation and you can make the percentage whatever you want, 0.05%, .1%, .003% etc. It just becomes a top line expense and adjust the initial salaries down to account for it (pay $40k entry instead of $50k with the understanding that the union percentage share is where the difference will be made up).

It makes no difference if you're going to deduct employee compensation anyway. Whether you pay them via split or pay them via salary, it's still pre-profit.

 

[JonesBones]

1) But you're not sharing in the start up risk, which is what I said in my first post. The initial investors are the only ones who share in the risk of starting a new business and thus reap the rewards of bringing the idea to fruition. Everyone who buys on secondary market is buying into something that is already established and they're gambling on sustainability and growth. It's a different risk from that experienced by the founders. And in that sense, your secondary market investors are no more part of the initial risk class than your employees are. Neither group risked money to turn an idea into a company.

2) If you have a metric that the Union would accept that's fine. My point was simply that if you just say "profit" then the company can legitimately manipulate that number for any number of purposes that would harm the Union's profit sharing position while still benefiting the shareholders.

Gross takes that out of the conversation and you can make the percentage whatever you want, 0.05%, .1%, .003% etc. It just becomes a top line expense and adjust the initial salaries down to account for it (pay $40k entry instead of $50k with the understanding that the union percentage share is where the difference will be made up).

It makes no difference if you're going to deduct employee compensation anyway. Whether you pay them via split or pay them via salary, it's still pre-profit.

You just said that secondary market buyers are "gambling" but employees take just as much risk? What? Secondary shareholders take risks and reap rewards or losses.

 

[panamaican]

Well, the person you were responding to and made the thread made the same point I did. He must be confused too.

They are taking risks though. More than the employees.

I corrected the person I was responding to, the same way I'm correcting you.

And, no, they're not taking more risks than the employees. The secondary market investors are free to enter and exit the risk pool as they choose. The employees are not. The employees are risking their actual livelihood on the organization, the secondary market investors are risking discretionary capital. In terms of risk, founders sit at the top, employees come next and secondary market investors come 3rd. The secondary market guys have the least involvement in the company and it's success/failure.

When an employee or an initial investor can short their commitment, maybe I'll buy your argument but until then the secondary market has market tools to protect their downside risk that the others do not.

 

[PainIsLIfe]

No. It is a problem that plagues all LARGE companies or industries that have unions. In particular gov't.

Once a company becomes large, the Unions realize they have a very powerful leverage. They can put the owners to an untenable question by striking and that question is 'how much value do you want to see destroyed in a strike and how much are you willing to give us beyond what is justified to prevent that?'

So Unions, especially in large mature successful companies can often extract more than is deserved based on their contribution asw a short term fix because it is, in the short term cheaper than the work stoppage, but long term these incremental uncompetitive concessions are cumulative. They keep adding up and up to a point now where the Company is at risk of being uncompetitive in their industry. And even if the Union management sees it, and sees the moral peril to the company they can do nothing about it. You simply will not get the job as a union leader if you say 'you know what, we are more than fairly compensated so we are going to stop pushing'.

Yes this in large part is what eroded the Auto industry along with some toxic crony capitalism.

My company is over 100 yrs old and ranked on the 200s byfortune. We run lean and are always complaining that we need more bodies in production, but we've never hired based on that complaint or because we got it put in a contract.

And we have 1 of the stronger unions in the US

 

[JonesBones]

I corrected the person I was responding to, the same way I'm correcting you.

And, no, they're not taking more risks that the employees. The secondary market investors are free to enter and exit the risk pool as they choose. The employees are not. The employees are risking their actual livelihood on the organization, the secondary market investors are risking discretionary capital. In terms of risk, founders sit at the top, employees come next and secondary market investors come 3rd. The secondary market guys have the least involvement in the company and it's success/failure.

When an employee or an initial investor can short their commitment, maybe I'll buy your argument but until then the secondary market has market tools to protect their downside risk that the others do not.

The employees can't leave their jobs? Do workers actually lose money at their job? lol. How much money did Amazon workers lose in this recent market downturn? And what if trading is my job?

 

[panamaican]

The employees can't leave their jobs? Do workers actually lose money at their job? lol. How much money did Amazon workers lose in this recent market downturn?

So, the employees have to risk a complete loss vs. an investor who can sell after a small loss and recoup most of their investment or take a hedged position. Additionally, the secondary market investor cannot be fired from their investment. Meanwhile, if the value of the company improves and the stock price increases, the employee does not share in that upside while the secondary market investor can sell his position for gain.

So, the employee has no mechanism for limiting downside risk, can have their investment position liquidated by 3rd parties, and have no profit-sharing position if there is an upside. Yeah, the secondary market investors have far less risk than the employees.

 

[JonesBones]

So, the employees have to risk a complete loss vs. an investor who can sell after a small loss and recoup most of their investment or take a hedged position. Additionally, the secondary market investor cannot be fired from their investment. Meanwhile, if the value of the company improves and the stock price increases, the employee does not share in that upside while the secondary market investor can sell his position for gain.

So, the employee has no mechanism for limiting downside risk, can have their investment position liquidated by 3rd parties, and have no profit-sharing position if there is an upside. Yeah, the secondary market investors have far less risk than the employees.

Small loss? How do you know how small it is? One bad thing happening can wipe out years of wealth. An employee leaving his job just wipes out future cash flows temporarily. He can go find other cash flows elsewhere. His past earnings aren't erased.

So, anyway, employees can leave their jobs. Limiting their downside risk is being a fuckin employee in the first place. That is risk averse to begin with. That is hedging. They go out of their way to avoid risk, which is why they shouldn't have any of the upside, because they have none of the downside. When they lose their job, they aren't selling a share at a loss.

 

[Denter]

There have been systems of non-adversarial labor cooperation but they are stigmatized because of Sr. Mussolini's unfortunate choice of alliances.

 

[panamaican]

Small loss? How do you know how small it is? One bad thing happening can wipe out years of wealth. An employee leaving his job just wipes out future cash flows temporarily. He can go find other cash flows elsewhere. His past earnings aren't erased.

So, anyway, employees can leave their jobs. Limiting their downside risk is being a fuckin employee in the first place. That is risk averse to begin with. That is hedging. They go out of their way to avoid risk, which is why they shouldn't have any of the upside, because they have none of the downside. When they lose their job, they aren't selling a share at a loss.

How do I know how small it is? Are we talking a specific investment position or about the mechanisms of investment themselves? An investor who chooses not to hedge large positions is making a choice to voluntarily increase his risk.

You did ignore the entirety of my post to focus on that? Why talk about risk if you're not going to discuss the entirety of the risk for both sides and the entirety of risk mitigation for both?

I'm going to stop this discussion because that doesn't make any sense. As I've said in the past, I passed the Series 7 General Securities Representative Exam. And I've drafted and overseen Private Placement Memorandums and the initial cash raise from investors for new companies within the primary market.

I'm going to rely on my experience in this area and summarize my opinion as this - I don't think you fully understand all of the pieces involved here beyond your experience as an investor in the equities secondary market and, accordingly, I don't agree with your analysis of the risk.

 

[JonesBones]

How do I know how small it is? Are we talking a specific investment position or about the mechanisms of investment themselves? An investor who chooses not to hedge large positions is making a choice to voluntarily increase his risk.

You did ignore the entirety of my post to focus on that? Why talk about risk if you're not going to discuss the entirety of the risk for both sides and the entirety of risk mitigation for both?

I'm going to stop this discussion because that doesn't make any sense. As I've said in the past, I passed the Series 7 General Securities Representative Exam. And I've drafted and overseen Private Placement Memorandums and the initial cash raise from investors for new companies within the primary market.

I'm going to rely on my experience in this area and summarize my opinion as this - I don't think you fully understand all of the pieces involved here beyond your experience as an investor in the equities secondary market and, accordingly, I don't agree with your analysis of the risk.

lol. Concession noted. You posted your credentials and ran away. Your credentials haven't prepared you for this conversation obviously. They only prepared you to recite your credentials.

 

[panamaican]

lol. Concession noted. You posted your credentials and ran away.

No, I explained that your argument doesn't make any sense. There's no point debating it because you're ignoring relevant factors to the conversation. Once I reach that point in a conversation, I absolutely walk away from the conversation. What's the point? If you understood all of the details, you wouldn't ignore them in your response. And if you don't understand the details, it's not worth the time for me to explain it. I gave you my position, you ignored 2/3s of the risks associated. I think your analysis is flawed based on my own personal experience.

Call it running away if you'd like, that's fine with me.

 

[MikeMcMann]

Nice idea and it’s workable but not without its problems.

1) Many companies already do something like this in the way of options. The ones that don’t do it, don’t because they don’t see the cost / benefit, ie the dilution to existing investors vs motivational impact.

2) Result is you still have a trade off if this is forced, because other companies in other jurisdictions don’t have to do this. So you have lower returns to capital and/or gaming to avoid this. You can move work to other organizations / contract out / etc.

3) You will need some arbitrary formula to decide how to divide the profit, again gaming and / or reduced competitiveness.

4) You are not solving the problem. Winners and losers are still created based on who makes into which company.

I think markets should govern how companies work and governments should redistribute to all via taxes and minimum incomes, the less micro management of the market system, the better.

1. yes Stock options do, also address this in another way. The companies you see typically doing that are not Unionized, and it was Tech companies that lead in this regard. Many Tech companies however had different motivations. they were not so much focused on squeezing profits out via productivity. Not that they were not productive. But there main challenge was that Knowledge workers are so very mobile and desired that they had to find a way to entice them to stick around a few years and not just jump to the next exciting thing. A wack of Options vesting in a year or so worth many times your pay does that.

2. Not sure what you mean here. If indeed the Management and employees buy into my model they would, via their own self interest ring every ounce of efficiency out of the system. Labour would be minimized while productivity maximized. If the most money in their personal pockets is tied to the biggest profits that is what self interest will want. Therefore there is no motivation to send work elsewhere by management or for employees to leave.

3. Yes. But that would be a little arbitrary at first but it will end up benchmarked over time. Of course the Unions will always push to move the average up so the benchmakr moves up and management down, and that will be the main bone of contention.

4. I think you are going back to point 2 with this, which i replied to.

 

[MikeMcMann]

Greater revenue also shows demand. I was just watching a Steve Jobs interview and he said that take care of the top line and the bottom line will take care of itself. I'm undecided and don't think any one metric works but I am towards sales over profit. Amazon and Tesla are the same. Amazon just expands, building its market share. Profit comes later.



Jobs also almost went bankrupt pouring money into Pixar. It worked though. He took risks.

Revenue is great. Profits are great. But Margins are king.

I was involved as a seed investor a few years back with a company in the VAR space. Value added Resellers. They are companies that consolidate buying for big industries like Hospitals and Schools Boards and big Corporations so they don't have to go to 50 different places to buy their desks, computers, etc, but the VAR's have to have paper thin margins. If they try to mark things up too much the buyer is incentivized to just go direct.

The one I was involved in was making Billions in top line revenue but between 1-3% was all that hit the bottom line in terms of profit. So on a Billion in sales they would make between $10M -$30M in profits. But if they had any margin compression at all (a price increase they could not pass on instantly) they would lose money that year. If it persisted they would go bust. That was seen as huge risk by the stock market as without margin there is so little room for error regardless of how large the top line Revenue is. Even a currency fluctuation can eat up profits.

In contrast I worked for a Food manufacturer that made what were considered huge margins. Between 14-20%. So on $80MM - $150MM in revenue they would make the same $10MM -$30MM in profits. But they could also absorb all sorts of market risk. Their Market Cap or Corporate Value was many times higher than the VAR's with the same gross dollars profit and much less revenue as they were far less risky for investors.

Amazon as I said, always had margins and underlying profit. They always could show that the goods they were selling were doing so profitably and it was just the massive re-investments in growth that made them unprofitable. But if you extrapolated that, and believe it held up, then pushing as much growth as possible made sense because as soon as you hit the top of your market and stopped growing and investing in it, you could have nothing but massive profits Voila.

 

[JonesBones]

Revenue is great. Profits are great. But Margins are king.

I was involved as a seed investor a few years back with a company in the VAR space. Value added Resellers. They are companies that consolidate buying for big industries like Hospitals and Schools Boards and big Corporations so they don't have to go to 50 different places to buy their desks, computers, etc, but the VAR's have to have paper thin margins. If they try to mark things up too much the buyer is incentivized to just go direct.

The one I was involved in was making Billions in top line revenue but between 1-3% was all that hit the bottom line in terms of profit. So on a Billion in sales they would make between $10M -$30M in profits. But if they had any margin compression at all (a price increase they could not pass on instantly) they would lose money that year. If it persisted they would go bust. That was seen as huge risk by the stock market as without margin there is so little room for error regardless of how large the top line Revenue is. Even a currency fluctuation can eat up profits.

In contrast I worked for a Food manufacturer that made what were considered huge margins. Between 14-20%. So on $80MM - $150MM in revenue they would make the same $10MM -$30MM in profits. But they could also absorb all sorts of market risk. Their Market Cap or Corporate Value was many times higher than the VAR's with the same gross dollars profit and much less revenue as they were far less risky for investors.

Amazon as I said, always had margins and underlying profit. They always could show that the goods they were selling were doing so profitably and it was just the massive re-investments in growth that made them unprofitable. But if you extrapolated that, and believe it held up, then pushing as much growth as possible made sense because as soon as you hit the top of your market and stopped growing and investing in it, you could have nothing but massive profits Voila.

But like you said, you have to believe it. A lot of people believe their reinvestments would work and didn't. There is a survivor bias, which Jobs is probably employing as well. He was also big on taking risk, a subject much discussed in this thread. But there are cemeteries of people who took risk and permanently failed.

Amazon is in a low margin business. I just looked it up and their margins are 4.8%, which is fuckin great actually. I expected it to be much less. It used to be around 1 or 2%. They havent really raised prices either. AWS is where their profit comes from I think. They also get tax breaks or whatever for investing in R and D. Walmart as a comparison has margins of 1.3% and Costco is 2.8%. Amazon's e commerce business is comparable to Walmart and Costco which is more volume based.

 

[MikeMcMann]

1) But you're not sharing in the start up risk, which is what I said in my first post. The initial investors are the only ones who share in the risk of starting a new business and thus reap the rewards of bringing the idea to fruition. Everyone who buys on secondary market is buying into something that is already established and they're gambling on sustainability and growth. It's a different risk from that experienced by the founders. And in that sense, your secondary market investors are no more part of the initial risk class than your employees are. Neither group risked money to turn an idea into a company.

2) If you have a metric that the Union would accept that's fine. My point was simply that if you just say "profit" then the company can legitimately manipulate that number for any number of purposes that would harm the Union's profit sharing position while still benefiting the shareholders.

Gross takes that out of the conversation and you can make the percentage whatever you want, 0.05%, .1%, .003% etc. It just becomes a top line expense and adjust the initial salaries down to account for it (pay $40k entry instead of $50k with the understanding that the union percentage share is where the difference will be made up).

It makes no difference if you're going to deduct employee compensation anyway. Whether you pay them via split or pay them via salary, it's still pre-profit.

1) i did not notice or glossed you tying to it to 'start up risk'. Thus you see my reply just addressing 'risk' in general and differentiating that when it comes to profit.

It would make no sense to only focus on 'start up' risk and if you think that is the argument I think you are mistaken. It is all risk. Tesla makes no money. It is not a start up. They need capital to survive or they will die. INvestors buy stock today and take on that risk based on a belief in Management and the Employees to execute a vision they sell.

The employees and Managers get rewards regardless of whether that success comes or not. They get jobs. The investor is literally transferring their wealth to them to allow them a chance to execute, in the hope that is succeeds.

It is perverse, in my view to say to the investors, even if we (The Managers and Employees) cannot achieve the goals we sold we, we are going to comb out an additional 'profit LIKE' share of additional cash, which by the way comes straight from you the Investors, who are ALREADY losing money as we (the employee and Manager) fail to make this profitable or sustainable.

As the company goes to zero the employees keep racking in their 'profit share equivalent' off declining revenue as the Owners are scrambling to figure out how to salvage any dollars.

NO. You I will never agree with that. It creates an Always WIn class, who always get their equivalent of profit share from Revenue while the only Profit Share to the Owners will come if the company is ultimately being successful and the stock value grows.

Whether investors come in at the start of later is meaningless. The company NEEDS them. The company cannot fund its own vision with cash flow. And it is the company making the pitch and promise to them saying YOU GIVE ME X dollars at $Y price and we will take that money, get superior results and return you a profit on your investment'. That is the bargain struck. You are saying the employees should be rewarded regardless and even if they fail miserably.

2) Based on discussions in this thread and points raised by you, Gandhi and others I think there would have to be a few metrics. One tied to profitability. One that recognized profits might exist, accept for re-investment or other (Amazon) and maybe one tied to stock price. So like with Tesla, if the investors were winning despite the company not making margin or profit but based on market confidence only, the employees should win also.

 

[MikeMcMann]

My company is over 100 yrs old and ranked on the 200s byfortune. We run lean and are always complaining that we need more bodies in production, but we've never hired based on that complaint or because we got it put in a contract.

And we have 1 of the stronger unions in the US

its a case study I would love to read about then as I cannot see how you prevent union bloat in large successful companies. the leverage swings so strongly towards the unions that they would be pretty inept not to take advantage of it, imo.

 

[Gandhi]

1. yes Stock options do, also address this in another way. The companies you see typically doing that are not Unionized, and it was Tech companies that lead in this regard. Many Tech companies however had different motivations. they were not so much focused on squeezing profits out via productivity. Not that they were not productive. But there main challenge was that Knowledge workers are so very mobile and desired that they had to find a way to entice them to stick around a few years and not just jump to the next exciting thing. A wack of Options vesting in a year or so worth many times your pay does that.

2. Not sure what you mean here. If indeed the Management and employees buy into my model they would, via their own self interest ring every ounce of efficiency out of the system. Labour would be minimized while productivity maximized. If the most money in their personal pockets is tied to the biggest profits that is what self interest will want. Therefore there is no motivation to send work elsewhere by management or for employees to leave.

3. Yes. But that would be a little arbitrary at first but it will end up benchmarked over time. Of course the Unions will always push to move the average up so the benchmakr moves up and management down, and that will be the main bone of contention.

4. I think you are going back to point 2 with this, which i replied to.

Companies use options for a variety of reasons. The point you are not really addressing is that if you obligate companies to share revenue in a way that they would not do otherwise you end up a) misaligning pay with productivity b) get tons of gaming c) have a very unequal system regardless.

Some will work at profitable places and some won’t, the problem is many of these workers actions will have little impact on the bottom line. Sure they can have some impact, but the nature of the industry and management’s decision have a bigger impact. Why should 2 workers doing the exact same job have govt regulation make one a winner and one a loser?

Employees may want to wring out more productivity but what if the solution is to get rid of employees? Is the mail room guy going to get the same share of profit as factory steward? If we take this to the logical extent are we now saying that workers pay should be volatile with profits rather than fixed (either fixed pay goes down or we lower ROI which means other companies not forced to do this attract more capital). And if ROI is not a concern, fine, how about just forcing wages for all upwards, seems more fair.

I could also see setting up a coperperation with all the intellectual capital, sales contracts, executive team and then outsourcing operations to a company, maybe even under different ownership. Not so different than many situations today (profit sharing won’t help the Chinese worker). The profit sharing will need crazy reallocations and regulation requiring and even more detailed interference in the market.

I think we already have a very effective tool for profit sharing. It’s just very under utilized. It’s called progressive incomes taxes. Combine it with social programs, minimum incomes/ support, and you have a system that does not require unions or detail regulations. The market does it things and we distribute the proceeds.

Again, respect the suggestion, just don’t think it’s an optimal solution. BTW me and @ultramanhyata have argued this one to death and I respected his position on it as well.

 

[MikeMcMann]

....

...

My dad was a serial entrepreneur. My mom was a nurse and about as risk adverse as anyone could be. Made for an interesting dynamic at home and eventually a divorce.

I always remember when my mom was approached by one of her career nursing friends who wanted to buy a private Nursing Home. She had an investor but still needed help in making the model work. She had an idea and asked my mom to join. The biggest cost after buying the building was the variable cost of nurses wages. She wanted to bring in a bunch of partner nurses who would agree to small base pay (compared to what they were currently making) but was tied to a profit share formula that if the nursing home hit its goals, they would be making many times what my mom made in the hospital. And if they were able to replicate that model they, as owners too would all share in the profit of those.

Of course my dad wanted my mom to jump at it. Take the risk. But my mom wanted no part of it. ZERO. She had no appetite to risk her pay to contribute to the success. She told her friend that but also told her she would work there for just competitive flat pay. They did not hire her and she happily stayed with the hospital.

That group owned 8 nursing homes before my moms friend passed and the nurses who joined her were all very wealthy.

My mom never once regretted her decision. It was just not her.

It is a pervercity to step in and say my mom deserved full pay PLUS a profit share, IF the company one day became profitable when the other ladies risked their own capital by taking variable pay that was reduced and which they never would have got back had it not worked out.

It would be even more perverse to say my mom should get full pay, and a revenue share (profit share equivalent even if no profit) that the investors (cash investor and nurses taking reduced pay) would be paying to my mom.

Can you imagine? She gets hired for full pay but the company is not yet making profits but the argument is that she should also get a share of revenue coming in even though it is less than costs (Losses) and its born by the Investors who is the cash investor and other nurses who then have to get even less pay.

Nope. No way.

 

[panamaican]

1) i did not notice or glossed you tying to it to 'start up risk'. Thus you see my reply just addressing 'risk' in general and differentiating that when it comes to profit.

It would make no sense to only focus on 'start up' risk and if you think that is the argument I think you are mistaken. It is all risk. Tesla makes no money. It is not a start up. They need capital to survive or they will die. INvestors buy stock today and take on that risk based on a belief in Management and the Employees to execute a vision they sell.

The employees and Managers get rewards regardless of whether that success comes or not. They get jobs. The investor is literally transferring their wealth to them to allow them a chance to execute, in the hope that is succeeds.

It is perverse, in my view to say to the investors, even if we (The Managers and Employees) cannot achieve the goals we sold we, we are going to comb out an additional 'profit LIKE' share of additional cash, which by the way comes straight from you the Investors, who are ALREADY losing money as we (the employee and Manager) fail to make this profitable or sustainable.

As the company goes to zero the employees keep racking in their 'profit share equivalent' off declining revenue as the Owners are scrambling to figure out how to salvage any dollars.

NO. You I will never agree with that. It creates an Always WIn class, who always get their equivalent of profit share from Revenue while the only Profit Share to the Owners will come if the company is ultimately being successful and the stock value grows.

Whether investors come in at the start of later is meaningless. The company NEEDS them. The company cannot fund its own vision with cash flow. And it is the company making the pitch and promise to them saying YOU GIVE ME X dollars at $Y price and we will take that money, get superior results and return you a profit on your investment'. That is the bargain struck. You are saying the employees should be rewarded regardless and even if they fail miserably.

2) Based on discussions in this thread and points raised by you, Gandhi and others I think there would have to be a few metrics. One tied to profitability. One that recognized profits might exist, accept for re-investment or other (Amazon) and maybe one tied to stock price. So like with Tesla, if the investors were winning despite the company not making margin or profit but based on market confidence only, the employees should win also.

1) I draw a real difference between initial investors and secondary market investors when it comes to risk. Too often people equate the risk of some day trader with the risk taken on by, for example, a Series A investor when comparing the risk position with that of the employees of the company. They're not remotely close to being the same risk.

That's the entirety of the point I'm making here - people say employees don't share in the start up risk because they don't risk capital to create the company. That's 100% true. But that has nothing to do with the people in the secondary market, who also do not risk capital to create the company. They are much closer to the position of the employees than they are to the position of the initial investors.

Now, I know you have extensive background here so, from your perspective, do you equate the risk position taken on by a venture fund pre-launch with that of someone who picks up 100 shares through Robin Hood a decade after the IPO?

Do you put the CEO getting stock option compensation in the same risk position as the guy who bought a 10% stake to cover an 18 month runway?

If you do, I will defer to your experience over mine but it would surprise me.

2) about gross vs. profit - that's my entire point. You can't go straight profits because of the shareholder issue. I'm fine with multiple metrics.