This is what people seem to forget. A company that doesn't grow for all intents and purposes is a dead company. Or in the M&A world we call it "distressed". It doesn't matter how profitable you are if you don't get grow there are serious implications - employee motivation, loss of talent, erosion of customer services, etc.

I don't see how employee motivation, loss of talent, erosion of customer services are related to the need for unyielding year on year growth.

There are companies out there, private ones, where their customers are happy, their employees are happy (most of the time) and their retention is high.

Without growth, the only way to get promoted is to get a spot of some higher-up who left the company (or retired/died). Whereas, in growing companies, there are new senior/management positions created all the time, to account for the growth - so, getting promoted is easier.

Ambitious, hard working people like promotions, so they gravitate towards growing companies and not stale companies.

> Ambitious, hard working people like promotions

Ambitious maybe (though that's nearly the definition of ambitious). Hardworking, not necessarily. I know a cement guy that you have never in your life worked a harder day than who has never received a promotion nor even sought one.

Ambition and hard work are hardly the same thing. Many people work hard at their job, are paid a good wage, and are satisfied with their job, rather than constantly seeking a promotion. Constant promotion seeking isn’t admirable, it’s just greed.

Am I the only one who thinks this sounds a lot like how pyramid schemes work?

So is there anything to be done about it? How to avoid companies being compelled to seek growth always, to the detriment of their internal functioning/culture?

As far as I can tell, don’t go public or be a regulated utility.

> There are companies out there, private ones, where their customers are happy, their employees are happy (most of the time) and their retention is high.

Companies that aren't growing? I meet A LOT of companies (about ~50 or so a year) and I can tell you there is massive difference between the distressed ones and the ones who are growing. btw - even 2~5% growth is fine, it doesn't need to be 25% google scale growth...but flat or declining is bad.

There are plenty of small private companies that more or less plod along year after year--small consultancies and the like. You're not going to have the level of compensation and opportunities you have at a large profitable growing public firm but you may be OK with that. Obviously declines are bad and, in any case, compensation will probably be a fraction of Google etc.

I hate how hn top threads usually degenerate into something totally unrelated to the original posts.

It's about stock price and bonuses, in public companies. The only metric that a board of directors can use is stockholder welfare. That's their primary fiduciary duty, according to law these days.

So, what to bonus the CEO on? Stock price appreciation. Stock price valuation loves growth. So even though a flat business throwing off 10% profit is a very nice business to be in, the only way you can increase stock price is to grow margin, which is really hard and attracts competition. Ergo, CEO is going to try to grow the company to boost the stock price. That's one reason dubious mergers are pursued, as it at least will goose revenue and profit. Wise investors might use return on equity or capital as well, but the market in general biases towards the revenue and profit metrics. Stock goes up, CEO gets their bonus.

For a private company, slow or flat growth with a nice profit margin is great, and without having to favor growth at all costs for pesky stockholders and analysts, you can pick and choose when a good opportunity comes along, and grow a bit anyway.

This seems like a popular and reflective comment, but this is a very cultural idea in my amateur opinion. It seems like this -needs- to be so, and many do so because of that belief. But in reality it is a self perpetuating hamster wheel of burn out bliss a company is setting itself up for.

It's not cultural at all -- it's economics.

Businesses are valued based on discounted cash flows (DCF). If you're profitable and not growing, your cash flows are very stable & easy to evaluate -- you get a low P/E or P/E/G ratio. But if you're growing quickly with sane unit economics, most of the DCF value is in future years... which then results in much higher multiples relative to today's revenues & earnings.

So? Who needs that?

Not the company, unless selling stock to raise cash.

Not the employees, if paid in cash instead of funny money.

Nobody needs that.

It's cultural.

Politician wins election by promising lower taxes by assuming greater investment returns hence requiring less money to be set aside for defined benefit pensions.

People see other people’s wealth growing quicker because their investments grew more, increasing demand for higher growth investments.

Population growth inherently leads to economic growth assuming a sufficiently stable society and access to resources.

All of these create an environment where people expect certain ROI and make plans according to those ROI.

So is there anything to be done about this? It seems from this thread that the conclusion is that companies cannot avoid constantly seeking growth, and yet that growth ultimately destroys internal social mechanics / culture.

It can only not avoid it because that’s how the deck is stacked. Different rulesets would give different outcomes. Just because we are riding one certain economic theory, does not mean its the only way of value creation.

> Sure, but the stock price would tank (note that the current multiple assumes growth), employees would leave due to poor compensation, and starts a downward spiral.

This assertion presumes that it is impossible to propose any form of compensation that's enticing without involving stock. This is not only baseless but also flies in the face of reality, as other tech companies, including other FAANGs, barely offer any stock and still manage to attract top talent.

You could pay them in other means, but there were constraints there are obvious constraints that I did not spell out. We are assuming a non-growing company that now needs to pay extra cash to you top up employee comp with cash. Your margin will start to shrink, and so does your earnings (the premise was no growth, remember), continuing the downward trend of your stock.

Plus, your competitors are not sitting still. People will go work for the more exciting companies even if you pay them equal amounts anyway (to vary their type of work and grow their careers) rather than staying and watching the thing die and doing the same thing for 30 years.

> This is not only baseless but also flies in the face of reality, as other tech companies, including other FAANGs, barely offer any stock and still manage to attract top talent.

Which one?

Netflix is known for having all-cash offers.

Netflix is pretty much the only FAANG that does that. Every other large tech company has generous stock grants, and as you pass a couple years of experience your stock will generally be larger than your cash compensation.

> Netflix is pretty much the only FAANG that does that.

Netflix is also 20% of FAANG companies, so that's not as lonely as it sounds.

In the context of this discussion, it is more useful for FAANG to mean any tech company or tech adjacent company employing a lot of software engineers with comparatively high pay, in the form of cash or cash + stock.

Right, but they're a strange company that just happens to be in FAANG. Pretty much every other large company, in the FAANG acronym or not, will give you equity.

Netflix is in FAANG only to make the acronym nicer

They could achieve good multiples by paying dividends. The question is whether they're wasting as much money trying to grow as they are saving by keeping their profits offshore (and not paying tax on them). I don't know, but at some point the answer may become obvious.

Owners do not want dividends. I do not want dividends from my tech stocks if I’m simply going to turn around and reinvest in them. That is just paying extra short term capital gains taxes when you do not have to.

Qualified dividends (which represent the vast majority of them) are taxed as long-term capital gains to avoid this concern.

True, but it does not seem like investors are clamoring for dividends either way. Personally, I would just take the dividend money and reinvest it so it’s all the same to me.

If the stock price went down, they would just pay employees in cash, which is a slightly less tax-advantaged solution.

How are RSUs tax advantaged?

The award is taxed at the same rate, but theoretically (in the States, at least) you can hold them for a year after they vest and only pay the much lower long term tax on the appreciation of their value. In order to easily compare apples to apples this assumes that in the alternative to getting RSU's that you would actually get compensated more income instead in proportion to the value increase of the company. An equivalent would probably be to compare a cash bonus that is directly tied to the value of the stock vs the equivalent gain in RSU. All else being equal, the RSU gain is more tax advantageous if you have held the RSU for a year or longer before liquidating the position.

That is not a tax advantage. It is simply paying long term capital gains tax rate on long term capital gains.

Companies are not paying with RSUs because of a tax advantage, they are paying because it is cheaper than paying with cash.

While it's unclear whether grandparent was referring to tax advantages for the company vs. the individual, I'm not sure I understand your comment about lack of tax advantage in the context of individual awards.

Scenario A: Company X gives me a sign-on bonus of $10,000 and an agreement to bonus me $100 * y%, where y is the increase in value of the company.

Scenario B: Company X awards me $10,000 of RSU that vests after 1 year.

Let's say I'm in the highest bracket, $523,601 or more in income. The tax rate for that bracket for 2021 is 37%.

After 1 year, the stock price goes up 100%.

In Scenario A, I have vested RSU's worth $20,000. If I sell $10,000 of that (the gains only), I pay short term capital gains equivalent to my tax bracket, or $3700. If I hold that stock for 1 year after vesting and the stock price stays exact same for the next year, I pay the long term rate of the highest bracket which is currently 20%, or $2,000.

In Scenario B, I get a bonus of $10,000 just the same, but there is no situation where I'm not stuck with paying $3,700 on that $10,000 gain. In Scenario A, I can save almost 50% of the tax bill by holding it for a year.

RSUs are cash equivalent from tax purposes. They are taxed at market rate at vest time. If you sell at that moment and buy other stock it has the exact same LTCG treatment. It’s also the same as if you are compensated in all cash and go buy stock with that.

It’s like cash if you got more when the share price is higher.

It can also be a cash flow problem if you have to cover quarterly estimated tax in between trading windows. My day job sells and withholds 22% of my vesting RSUs, because that’s the statutory rate for supplemental wages, but I always owe about 10% more.

This isn't how things work - you pay income taxes on RSUs when they vest, not when you sell, and their cost basis is the price at the time of vesting. So it's entirely irrelevant from a tax perspective whether they come in cash or stock. If you want cash, you can sell the stock and if you want stock, you can buy - the tax consequences are exactly the same.

There is no tax advantage for the employer or the employee. Your scenario A is incorrect because you pay income tax at time of vesting, as the other comments pointed out.

> employees would leave due to poor compensation

With a gross profit of 100 billion dollars a year [1] they can easily outbid the market compensation if they want to and stay with current revenue. But again how many Jeff Deans can one company need before it calls itself The Man?

[1] https://www.macrotrends.net/stocks/charts/GOOG/alphabet/gros...

Why would gross profit be the relevant metric here and not net profit?

You’re right. 63 billion dollars of net profit per year is a better metric.

You could compensate the employees with things other than stock