Going even further, Mungofitch seems to be saying that if a company is paying its employees more than HE thinks is appropriate that that is somehow bad, no matter how successful the company is.

Yes.

I think it's bad because it is extremely expensive in the long run for continuing shareholders. It is a method of compensation almost certainly chosen precisely because the true long run cost is very well concealed, despite being so much higher. To management, it seems like free money: they can give out shares like lollipops and it doesn't hurt the metrics they dance to.

Ignore buybacks, as they are a totally separate issue of capital allocation. Imagine, for example, that 20% of all Alphabet shares that ever existed owe their origin to options or stock granted to employees at some point in the past. In that case, any one of the shares of a traditional origin long ago would, absent that issuance, be worth 25% more today and could therefore be assumed to have a market price 25% higher today. (at the same market cap, of course). Those share grants and options were in lieu of more obvious cash, so you'd have to deduct what it would have cost in pure salary and bonuses to employ those same people. But I think it's fair to say that, in our hypothetical, that cash cost would have been vastly VASTLY less than 20% of the current market cap of Alphabet. In this hypothetical, I think those people would have worked quite happily for far less than $899 billion in total salary.

So, either management are spending shareholders' wealth unnecessarily because they are cynical and it makes them look good in the short term while mostly hiding the true cost, or they are spending shareholders' wealth unnecessarily because they are not smart enough to figure out that that's what they're doing. Neither result makes me think that management is doing a good job. Cash is a one time expense, but a share is a greedy claim on all future success, the Dexter Shoe problem.

None of this is particularly surprising. This isn't specific to Alphabet, of course, it's a widespread phenomenon and Alphabet is not the worse offender. It's a legal wheeze that hurts long term shareholders, so it gets used. The motivation is, I believe, almost entirely related to getting an unlimited hiring budget in a way that almost completely obfuscates the true long run cost. The agency problem measured in billions.

All that being said, Alphabet's moats are so strong that it can withstand a remarkable number of dumb management moves, which is why it has made it such a great investment despite spending equity like water. But the shareholders would still be better off without those moves.

Jim