No. of Recommendations: 12
"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."
Jim, there's at least a third (and fourth) possibility: management wants to incentive its people to think long term and do such a great job that -- if they are successful -- they get rich along with the shareholders. After all, the shareholders provide capital, but nothing else. It is the people who work for the company who actually produce wealth using that capital, so giving them a piece of the action doesn't seem insane to me. And in the case of GOOG, it seems to have worked out pretty well for everyone. If the company had failed, the shareholders would not be complaining about the equity they "lost."
BTW, I looked it up. GOOG doesn't report salary expenses per se, but for 2025, it looks like it paid out roughly $60B in cash compensation, and about $25B in equity compensation. I based that on the average salary per employee and the number of employees, which is public info. I have no idea if that is too much or too little, but the people making the decision (the board) are shareholders, too, and I generally assume they are acting in their own interest, not philanthropically towards the employees. They are just making a different calculation than you are about what is in their best interest.
By contrast, I'm OK with BRK paying Greg $25M in cash and letting him buy his own shares if that's what he wants to do, even though the prior guy worked for a lot less. He's worth it to me because he will produce the future earnings that I will enjoy from my living room. If they had given him stock instead of cash, I would not have minded that either. I might have preferred it; I was happy to see that he was buying shares and putting skin in the game. It's an expense to BRK either way. And I'm thinking long-term.
Equity compensation is often abused, which is bad for shareholders. The post-dating, re-dating, and other nonsense that goes on with options is especially indefensible. But when done correctly, equity compensation is a useful and important tool to align interests and reward productive behavior, which is good for shareholders. The devil is in the details.
I suspect you'll explain why I'm wrong, and that's OK, too, for like all good Shrewders, I am here to learn.
abromber
