Friday, October 31, 2014

The wage growth shell game.

I was going to post about this a few months ago, because I knew once it trickled through - people would start screaming that they were right about wage inflation.  They are only sort of right.

Back in the good old days before we had a completely socialist administration - publicly traded companies would provide stock incentive to attract employees. These were normally called stock Options or RSU's. It was a way for companies to share the wealth with their employees. This was on top ESPP which employees paid for out of their pockets if they wanted to.

This perk has happened in The Valley for as long as I can remember. Usually it was because companies couldn't afford to pay you that much. So, to compensate for that - you got a tiny sliver of the company which hopefully would be worth more in the future. This was an effort to make up for not getting paid as much.

Well, back at the first of the year, the Obama administration made it way more expensive for companies to provide these extra benefits. So, they just got rid of them and now are giving people pay in exchange for the Options or RSU's they would have gotten previously.

Now it looks like people are getting paid more, while in reality - they aren't.  One could argue they are technically getting paid less. Because if the company does well, you get a much bigger payback on the Options or RSU's. You can't really track the money people make from Options or RSU's because people can hold onto them for as a long as they like.

I'd guess the reason the administration did this was to punish CEO's who get ghastly pay in Options. But all this did was hurt people down the line which would benefit from the company performing better. And if people have a sliver of the company they own, they are likely to protect that company. The better the company does - the better they do.

So, it's still way too early to have a party about wage growth.  It's only an illusionary improvement in wages because they are really just taking that money pool from somewhere else.

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