Timothy Delille

🌈 Abstract

The article discusses the paradox of employees not feeling like "owners" even when they are granted shares in the company they work for. It presents a simple model to illustrate the game theory behind this phenomenon and explores potential solutions to better incentivize employees.

🙋 Q&A

[01] If you have worked in a large company that issues stock to its employees

1. Why don't employees necessarily feel like "owners" even when granted company shares?

• Employees often treat the stock price as an external factor independent of their work, despite the premise of stock-based compensation being that employees should be incentivized to increase the company's valuation.

2. What is the key insight from the model presented in the article?

• The key insight is that the employee's payoff should not decrease as the number of employees increases. Instead of allocating 1 share per employee, allocating a fraction of the value produced can be a better incentive scheme.

3. What is the thinking behind commission-based schemes like sales teams or traders?

• Commission-based schemes where employees own a percentage of their profit and loss are based on the idea of ensuring the employee's payoff does not decrease as the number of employees increases.

[02] ZikZok company model

1. What are the key assumptions in the ZikZok company model?

• The company is 100% owned by its employees, each of whom is granted 1 share.
• Employees produce units of value for the company at units of cost.
• Employees are compensated with a wage in addition to their one share.

2. What is the condition for an employee to have an incentive to work?

• The employee has an incentive to work if the fraction of value they can capture is higher than the cost they endure.

3. What is the critical number of employees where each employee has an incentive to work?

• The critical number of employees is the number where the employee's leverage (value created per unit of cost) is greater than 1. If the leverage is less than 1, there is no number of employees where they have an incentive to work.

4. What is a better incentive scheme proposed in the article?

• Instead of allocating 1 share per employee, allocating a fraction of the value produced, such that the employee's payoff does not decrease as the number of employees increases, can be a better incentive scheme.