by hnbad | 2025-04-14 09:21:45+00:00
> The primary reason why the gap between the wealthy and and everyone is increasing is that employees started preferring cash compensation over equity.

You're making it sound like equity turns companies into co-ops when in reality most equity remains unexercised (because that literally involves paying your then likely former employer money) or ends up being worthless for all the reasons others have explained.

The gap between the wealthy and everyone else has been sharply increasing ever since Reagan[0].

CEO pay alone has massively skyrocketed, detached from all other economic growth factors (most of the growth occurred in the 1990s)[1]:

> From 1978 to 2020, CEO pay based on realized compensation grew by 1,322%, far outstripping S&P stock market growth (817%) and top 0.1% earnings growth (which was 341% between 1978 and 2019, the latest data available). In contrast, compensation of the typical worker grew by just 18.0% from 1978 to 2020.

The reason workers prefer cash compensation is that you can't use equity to pay your bills. Cost of living has increased since the 1970s[2], housing costs and college tuition have become a lot more expensive[3]. While electronics may have gotten cheaper, the day to day expenses have gone up and those in lower income brackets will necessarily spend more of their income on things like groceries and rent. Standards of living increasing with income may increase those expenses but there's a cut-off point where those increases no longer track linearly even if you throw in money sinks like private yachts. If you want to reduce cash preference, you'd need to first address the underlying socioeconomic insecurities that drive the real need for cash that this preference comes downstream from.

You can't have multi-billionaires (or even near-trillionaires) and a steady socio-economic progression to them from sub-minimum wage. Multi-billionaires can only exist in a system that allows for disproportionate amounts of wealth to be drained out of the system into a minute fraction of the top percentile. The gap is a necessary conclusion of a system that allows multi-billionaires to exist.

Thinking this can be fixed by "making it easier" for corporations to give workers equity not only ignores why workers prefer cash (and why they're more likely to do so now than decades ago) but also why corporations want to use equity for compensation (i.e. because it usually reduces cash compensation while coming with very low (and in any case: delayed) risk due to workers not exercising options or shares becoming worthless or near-worthless due to the way preferential shares are usually structured). If we were talking about actual worker ownership (or at least revenue sharing) things would look very different, but that's not something most corporations want and definitely something most investors/VCs would reject outright.

[0]: Reagan cut the top marginal income tax rate by 20% to a mere 50%, after it had already previously been cut sharply by Johnson from 91% to 70%[a]. He also slashed capital gains tax on dividends by 20%[b]. The 1980s also saw the rise of Financialization[c], i.e. the rise of the finance economy (rapidly eclipsing the real economy), and a sharp decline in the already scarce labor union participation[d]. It's also worth pointing out that the response to Republican neoconservatism from the Democratic Party was (like in much of the West - possibly due to the Cold War hard line against socialism) not a stronger leftist opposition but instead a shift towards Third Way[e] politics and neoliberalism, i.e. while Reagan may have been the starting point, the widening of the wealth gap was a bipartisan effort.

[a]: https://taxpolicycenter.org/statistics/historical-highest-ma...

[b]: https://www.forbestadvice.com/Money/Taxes/Federal-Tax-Rates/...

[c]: https://en.wikipedia.org/wiki/Financialization

[d]: https://www.imf.org/external/pubs/ft/fandd/2015/03/jaumotte....

[e]: https://en.wikipedia.org/wiki/Third_Way

[1]: https://www.epi.org/publication/ceo-pay-in-2020/

[2]: https://www.investopedia.com/ask/answers/101314/what-does-cu...

[3]: https://www.consumeraffairs.com/finance/comparing-the-costs-...