How do we fix this loop in companies? It is a very serious problem for humanity’s future. It exists in government too. How do we reward long-term thinking and decisions?
A lot of the most egregious, society-warping behavior by monstrous-sized companies is due to paying execs with stock. It was a salary tax avoidance maneuver that started in the 80's, and has led to 1) absolute fixation on short-term stock price, and 2) (also to that end) stock buybacks. Many of our largest corporations have used recent stimulus moneys to fund buybacks like it was sex or something. All it has been is a transfer of tax dollars to the oligarchy, and has "stimulated" nothing. We need some laws that do away with the loophole somehow, either by not allowing companies to pay people in stock, or by taxing the stock on its nominal value when given, making it much less attractive as a shell game.
This has also completely messed with startup stock options. Because large companies used options to award execs with tax-free incentives, and the tax authorities didn't like that, we now have to pay tax on the options when we get them rather than on the capital gains we actually make. And it doesn't solve the problem - execs get paid some other way and options are still fubar'd
RSUs are taxed as income according to their value on the day they vest. Companies can offer employees below-market grants, but the difference is recognized as a cost and (eventually) has to be approved by shareholders.
Stock options with a strike price below market also have tax implications for both the company and the employee.
Equity based compensation essentially comes out of the hides of shareholders: As long as they are happy (and people aren’t playing Thiel-type games), it’s not as terrible as you make it out to be. There’s a limit to what buybacks can do to juice prices and equity generally puts people into a long term mindset.
Nature solved it for us: obsolete things die and are replaced by better, new things. Google dying is not a bad thing, it's how it's supposed to work. Same for countries, religions, and so on. On a different scale.
The problem, ultimately, cannot be solved without disassembling neoliberal capitalism. It is more or less endemic to the system. To a large extent that short termist, get returns and move on before the cost is due, mode of being is how we managed to run an economy that requires constant growth (rather than stability) to function. It's also why we won't solve any of our climate or many social issues.
There's no way to change this without drastically restructuring the utility function people apply to decisions, and that just won't happen until the aftermath of whatever collapse is inevitably going to happen when the planet floods.
Yeah. It's wild to see sibling comments thinking that it's an exec incentive "problem." No, exec incentives align to GOOGL shareholder incentives and GOOGL shareholders are pursuing returns at your expense, as is their right under capitalism. In theory, competition keeps this in check, but we either need to get much more serious about encouraging competition or we need to figure out a different way to organize control.
Personally I'm a bigger fan of "encourage competition" than "reorganize control," at least in the search engine market, but I fully agree with you that what we see here is the system working exactly as designed.
Short term rewards would need to be less enticing than the long term ones. Doing so would involve restricting many rights and privileges and people would hate that.
This is essentially what corruption is. Fixing corruption is extremely hard, especially when it is less overt like this. The main thing you can do is to teach people how to spot bad apples and push them out, fire them or in other ways punish them and reduce the damage they can do. It shouldn't be culturally acceptable to be a bad apple, but that requires a cultural change and those are really hard to do.
You have to align the long term growth and wellbeing of the company with the long term prosperity of the employee. This is why stock options with a long term vesting period have become an attractive choice.
Easier said than done, but the basic idea would be something like what the Founding Fathers of the US did with the Constitution - make a system where incentives are set up in such a way as to align success for the individual and the group.
If you start a company, you can experiment with alternatives to the current "increase da KPI" style of organization that is so prevalent nowadays.
I think Steve Jobs was a good example of someone who governed by pointing people to a beautiful vision, rather than mindless "ya, numbers go up" type thinking prevalent amongst investors nowadays.