> If your employees feel Jeff is making too much money, maybe he is? Or maybe your company is doing a poor job of making it clear what it is that he brings to the table.
No matter how expertly this is pulled of, human jealousy is still a risk. In particular, because there are more than a few people who think what other people do is less valuable just because it isn't what they do. In addition, I don't think many companies can successfully justify every decision in a satisfactory way to every employee, no matter what decisions they make. Nor should they have to.
Not that I'm defending keeping wages secret. I think it creates more problems than it solves, and that it doesn't even solve this problem in most cases.
I have seen the jealousy part this first hand. I went to work for a startup in the late 90s during the first "bubble". I was one of the first employees on-board and the company was ramping up quickly. The plan, as with most Internet startups at the time, was to IPO and everyone would be happy.
Salaries and options were fairly quiet talk. No one really discussed them that I ever heard. Then we started preparing for the IPO. A few documents "accidentally" got included in a public filing. These documents included a list of current employees, their salaries, and the number of options they were granted. There was also one sales employee who had gotten an employment contract that was completely out of the norm of what others were getting paid. All of the sudden salaries and options became a major discussion point among employees.
To make matters worse, prior to the IPO it was determined that too many options had been granted and they needed to rain in the grants. The solution was an 1 for 8 reverse split (meaning that if you were initially granted 8000 options you now only had 1000). This was kind of an icing on the cake morale blow for employees. It didn't help when the stock soared at the IPO and people were comparing what they should have made with what they actually made.
Can you explain how such a split works? My understanding was that after those things, everyone still has the same percent of the company as before, right? So how does that affect your payout? Forgive me for being naive.
It is confusing, so I will try to break it down as simple as possible at least the way I understood/understand it. The reason the reverse split happened in the first place was that the company was trying to get a certain valuation with a certain opening price for the stock at IPO. With the number of shares they had granted in the option pool, hitting those target numbers was impossible. To adjust for this, it was decided to do a reverse split to reduce the number of shares out thus allowing them meet their valuation and opening price for the IPO. For example, if they wanted raise $8,000,000 on the IPO and have a $20 opening price they could only have 400,000 shares out. Instead they had 32,000,000 shares out. This would have meant to hit the same $8,000,000 raise, they would have had to open at $0.25. So to adjust they did the 1 for 8 reverse split meaning they went from the 32,000,000 shares to 400,000 shares out. Now they can open at $20 and raise their $8,000,000.
Using the same example above, here is where it hits the employee. Let's say on opening day the company opens at $20. Now let's say in the original picture you owned 8000 shares and stock closed that day at $60. You would stand to have made approximately $320,000 ($480,000 - $160,000). However, now with the reverse split you now only have 1000 shares. The stock still opens at $20 and still closes at $60. But now you only made $40,000 ($60,000 - $20,000). That's the downfall of a reverse split.
At least with a normal split (i.e. 2 for 1) you have an upside potential on earnings. This is how a lot of early employees of companies like Microsoft, Apple, Under Armour, etc... have made out significantly well for themselves. With a reverse split they are taking away shares so there is no upside.
If anything, I'm more confused after that. You're comparing the case of a $20 share price without a reverse split to the same share price with the split. That's absurd, since changing the number of shares changes the price (market cap = number of shares * price of a share -- and the market cap is to a first approximation fixed).
The proper comparison would be a share price of 20 -> 60 with the reverse split, or a share price of 2.5 -> 7.5 without. And with those numbers you'll see that the split had no effect at all.
Maybe there's a scenario in which a reverse split screws up the employees. But I don't think it's the one you're describing.
Sorry if it confused you. You are right I am comparing the pricing of $20 using both with and without the split. Let me try again.
Let's say you have 32,000,000 shares and you want to raise $8,000,000. You would need to price the stock at $0.25 per share to guarantee that raise (32,000,000 * 0.25 = $8,000,000). Now let's say an employee has 8000 shares. At IPO their 8000 shares are worth $2000 if the stock opens at $0.25. Let's say the price goes up 4x, or to $1.00, that day. The gain is $6000 ($8000 - $2000).
To rectify the issue of the $0.25 opening price (major stock exchanges will not allow a stock to open that low and have minimum prices), the company decides to do a reverse split to reduce the outstanding shares and in turn raise the price of the stock. The company still wants to raise $8,000,000 so to adjust the number of shares outstanding (go from 32,000,000 to 400,000) they must do an 1 for 8 reverse split. If an employee had been granted 8000 shares when they started, they would, after the reverse split, only have 1000 shares.
After the reverse split and on IPO day the company now opens at $20 (8,000,000 / 400,000). Now let's say the price still goes up 4x, or to $80. The gain is still 4x, and the employee walks away with a $60,000 gain instead.
Where I think this confuses everyone is comparing the gain pre-split and post-split. You are right in that the gain is the same and in theory the employee neither lost or gained anything through the split. However, from an employee morale perspective the employee still views it as a loss. In the back of the employee's head they took the job under the premise of having 8000 shares and when the company IPOs they begin comparing what they should have had to what they really have after the split (8000 vs 1000 or $480,000 vs. $60,000).
The other part that I have left out is that with the reverse split your strike price goes up. So if you were originally brought on with 8000 shares and a $1 strike, you now have 1000 shares and a $8 strike. I didn't factor this in the math above in an attempt to make it easier to follow.
Hopefully that clarifies, sorry if I made that more confusing. You are 100% right the percentages and the gains are still the same in theory. It is a perspective that causes the loss of morale. That is why I was using my original comparison numbers. I am by no means an accountant or attorney so probably not the best person to explain the accounting aspect of a reverse split. :)
All those numbers are really muddying the waters, but I suppose that's par for the course with stock splits.
The bottom line is much simpler: before and after a forward or reverse split, everyone has exactly the same share of the company as before. The rest is just an accounting fiction.
Granted, the exchanges enforce some of that fiction with their minimum share prices, and of course in the old days when shares were often traded in blocks of 100 it made a difference in how small a trade you could make.
But aside from that, it's still a fiction.
A reverse split is like saying "So you want to buy some pie? I was going to sell you 16 huge slices, a full quarter-pie each! But I changed my mind. Now I will only sell you four pies."
In other words, it's a psychological/educational problem, not a financial one. The only people truly affected by the splits you described are those who don't understand splits work.
Granted, this problem can be a real one. I had a friend who celebrated with joy any time a company whose shares he owned did a 2 for 1 split. He was certain that the shares would almost immediately climb back up to their previous price, because that was the natural share price for the company.
I tried to explain to him that he had exactly the same share of the company as before and the split didn't affect the company's financials in any meaningful way, but it just never sank in. He bought companies that had a habit of splitting their stock, and avoided companies that just let their share price rise.
The stock reports on the radio certainly don't help with this: "X co is up $6.51 at $327.90, and Z co is up 55 cents at $14.23."
An analogy that might help morale about the reverse split: "Instead of each getting eight pizza slices (opening price $0.25, strike price $1), you each get one pie (opening price $2, strike price $8)."
The real danger in a split or reverse with a private company is they can pretty freely change your ratio of unvested: vested stock, trapping you into 4 more years of servitude.
Had that happen to me once and saw others go through it at another company since then that I joined afterwards.
Want to discuss morale killers ? This is a pretty good one
However, now with the reverse split you now only have
1000 shares. The stock still opens at $20 and still
closes at $60.
That's off. Why are you assuming people would pay the same amount for 8 times as much of the company, instead of 8x more? A better guess would be that if before it would have gone $20 -> $60, then after a 8 -> 1 reverse split it would have gone $160 -> $480.
The only reason splits exist is that people have an irrational attachment to the value of a "share" and expect to see it in a certain range, even though the total number of shares available is a number chosen more or less arbitrarily by the company.
> No matter how expertly this is pulled of, human jealousy is still a risk.
I always hear this argument, and I wonder how often it really applies. I have coworkers who do basically the same job as me but get paid twice or more what I do for it. I don't sit around being jealous, I think about how I know it's possible for me to get paid that much and that's something I can aspire to. I suppose in other words, it's information about the salary ceiling. (Of course, that's still an incentive for management to try to make sure I don't know other people's salaries.)
I've never heard anyone, in this environment or at my last job, complain enviously about other people making more money than them. The most I've ever heard on the subject is me and a couple other guys shook our heads discussing another guy who made much less money than we did and definitely deserved more.
You'd be surprised at how petty some (otherwise very intelligent) people can be.
At a former job, the company paid to send some of team A to a conference for platform B ($1100 / head), while some from team C were sent to conference D ($500 / head). When one member from team C found out about the price difference between the two conferences, he started bellyaching and said the company owed him another $600.
Is someone with that attitude ever not going to be a problem? I feel like if you could get offended by that, who knows what you'll be offended by. And if that affects how you work with others, your thin skin* is a liability.
*Not saying that being offended is always bad--there are things that one reasonably might be offended by, just that this is one of them.
I'm not sure, but I think you might have left out a "not" near the end of that.
(Because "there are some X which are Y, but this X is not one of them" is a pattern I recognize as common, and "there are some X which are Y, but this is one of them" is not a pattern that I am familiar with)
I have never been bothered by envy either, but for some people it can be all consuming. I have worked in environments where the most common topic of conversation concerned how people in other departments were getting better perks or earning just pennies more. The resentment was really intense.
Then don't pay someone 50K and someone 250K when their value is fairly similar. I think it's common sense that if there's a certain sense of equality among your workers, nobody is going to be bothered because Jeff in sales earns 15K/year more than them, if in general there's not such a big margin between Jeff and Jane.
I also believe making salaries public are also a good way to fight against gender-inequality in the work place and it makes workers think collectively rather than individually.
I take it you've never worked in or around sales with a commission? One big deal can easily quadruple a salesperson's salary for the quarter. When that happens, people will downplay the deal as just being luck and get upset that the salesperson is making so much. However, they don't bat an eye when the salesperson doesn't make their quota a couple quarters in a row and gets fired.
People get jealous and can't handle the truth because a huge chunk of people don't even understand how a business works. Especially from an engineering side, it's really hard to swallow the fact that you have all of the skills and actually created the product, yet you will make 10% of what good salespeople make.
Pretty much. The same people who see salespeople as overpaid schmoozers and order-takers (some are, many aren't) would be utterly horrified at the thought they themselves could be fired without a second thought because of an organizational change or budget cut at a key account.
Well, yes, projects get canceled and people get fired as a result. But there tends to be less of a direct linkage with this quarter's revenue than in the case of sales.
Value is a subjective thing. What a company values is not necessarily the same thing as what an employee values. So that 250K salary may be due to something the company values at 250k for whatever reason the company has.
This does not of course mean that the coworkers of that 250k salary think the work is worth 250k. That disconnect which can be difficult to fix will often cause bad feelings and poison the atmosphere.
The correct solution of course is for the company to effectively communicate what is sees as valuable so that employees can work toward creating that value and measure correctly. This is harder than it sounds though.
This is an excellent observation and a corrective to the often-seen and simplistic "x employee is more valuable than y employee." The merits a company places on a project or the valorization of said project is also in play.
What's hard: even when Project A is effectively communicated as the most important thing BigCo does, Project B is still essential to BigCo's functioning and BigCo cannot exist without it, so how to counteract Project B employees feeling either devalued or jealous of Project A?
The UK supermarket ASDA is going through a sex discrimination legal case at the moment.
Warehouse employees get paid a bit more than shopfloor employees. Warehouse employees are mostly men. Shop floor employees are mostly women. The jobs are not identical, but they are similar. Shop floor employees include the shelf stackers - they take pallets of boxes of goods and unload these onto shelves. That's very similar to the lifting work that warehouse employees do. (There might be a need for some warehouse workers to have forklift licences, which would explain a small amount of the pay differential).
In this legal case the wages of both group are pretty close to minimum wage.
I've never worked in the supermarket industry, but I have worked in warehouses and on retail floors- and in my experience, the pace and magnitude of the physical labor is significantly higher in the warehouse. Again, I can't generalize my experience to every company.
One way they might address the allegations would be to transfer some warehouse employees to the sales floor and vice versa, providing a better mix, and a good opportunity for employees to see a different side of the operation. Of course, locations may not allow this easily- and may actually play into the pay disparity.
That's no longer true.
Tax information isn't being posted online now in Sweden you can make a "FOIA" request but you have to have a legitimate reason now to obtain it.
The public tax records were too often abused for harassment, political extortion and plain crime such as burglary and fraud so they pulled the plug on online publishing of tax records.
Is this from personal experience? because from all what i could gather since 2011/2010 tax records are only issued on demand using a FOIA request form and you need to specify a legitimate reason to access them.
Do you get full W2 type info, or just the joint income of the family? It would be hard to tell a coworkers income if it is lumped in with their spouses income + investment income + whatever.. vs seeing line item income for that person.
As well as in Norway (although, the degree of "public" has changed somewhat: Initially it was published in newspapers, that turned out to be not such a good idea as newspapers started publishing on-line (hello: permanent, on-line database of income, open to all[1]). So then it changed to one having to log in to the government portal to look up individual tax filings - and now those you look up get a notice about who has checked their taxes.
I'm a little conflicted about the last part; on the one hand, why not give notice if someone's been "snooping" -- on the other hand it kind of defeats the purpose of having a transparent system -- how will your boss feel if you look up his/her salary? And should it really matter?
Always thought it was nice that one could check some employee/manager salaries before heading to a job interview. One still can, of course -- with the caveat that some might find it intrusive. But then, would one want to work for such a person?
No matter how expertly this is pulled of, human jealousy is still a risk. In particular, because there are more than a few people who think what other people do is less valuable just because it isn't what they do. In addition, I don't think many companies can successfully justify every decision in a satisfactory way to every employee, no matter what decisions they make. Nor should they have to.
Not that I'm defending keeping wages secret. I think it creates more problems than it solves, and that it doesn't even solve this problem in most cases.