Quotulatiousness

June 26, 2011

Skype’s PR problem over their sneaky options plan

Filed under: Economics, Law, Technology — Tags: , , , , , — Nicholas @ 13:35

Over my career in the software industry, I’ve worked for several companies who provided a stock option plan as part of their employee compensation scheme. Exactly one of those companies’ programs ever provided me with any actual tangible benefit (the company was bought, and the options were bought back at market rate). It netted me a couple of thousand dollars. Options may have been a way to get rich in the early 1990s, but they’re pretty much a longshot lottery ticket now.

Skype has found a sneaky way of making that longshot chance even more unlikely to pay off:

Employees aren’t even able to keep the vested portion of their stock options. The vast majority of stock options granted to startups have a vesting period, typically four years, with chunks of those options becoming vested during that four year (or whatever) period. If options are vested you can exercise them, pay for the stock and own that stock. At least that’s the way things have been done over the decades.

Skype did things differently. With Skype stock options the company has the right to not only terminate unvested options, but also vested ones. And any vested options that you’ve exercised (meaning you paid cash for them) that were turned into actual shares could simply be bought back by the company at the price you paid, regardless of their current value.

Turning your potentially lucrative stock holdings (if the value was higher than your strike price) into a mandatory zero-interest savings account. Nice.

The fact that Skype adopted this plan in the first place isn’t in itself “evil.” But they’ve done two things wrong from what I can tell.

First it appears that employees had no idea what they were signing and they probably expected it would be a normal stock option type deal that everyone in Silicon Valley has done for decades. If Skype wasn’t crystal clear with them, and explained it in normal human language that they understood, then these employees were intentionally misled. Skype had an incentive to make things unclear, because employees would demand far more compensation if they had understood. The fact that employees are so surprised that this is happening suggests that they didn’t understand the agreement. This is what lawyers call fraud.

The second thing Skype did wrong was not to waive this clause with the looming acquisition. The company can deny all day long that they fired these employees for cause, not to save a few dollars on stock options. But the appearance is the exact opposite.

May 26, 2011

Here’s a different way to pay for socialized medicine

Filed under: Economics, Government, Health, USA — Tags: , , — Nicholas @ 09:35

Kevin Drum has an interesting proposal in Mother Jones:

So here’s an idea: why not reform Medicare by means testing it? Conservatives should love this idea.

Here’s how it works. Basically, we leave Medicare alone. Oh, we can still go ahead with some of the obvious reforms. Comparative effectiveness research is a no-brainer for anyone who’s not part of the Republican leadership. Ditto for some of the delivery reforms on the table. Or allowing Medicare to negotiate for lower prices. It would be great if that stuff works. But if it doesn’t, then people will need to pay more for their care. So why not have dead people pay? They don’t need the money any more, after all.

So Medicare stays roughly the same, but every time you receive medical care you also get a bill. You don’t have to pay it, though. It’s just there for accounting purposes. When you die, the bill gets paid out of your estate. If your estate is small or nonexistent, you’ve gotten lots of free medical care. If it’s large, you’ll pay for it all. If you’re somewhere in between, you’ll end up paying for part of the care you’ve received.

Obviously this gives people incentives to spend all their money before they die. That’s fine. I suspect they wouldn’t end up spending as much as you’d think. What it does mean, though, is that Medicare has first claim on their estate, not their kids. But that seems fair, doesn’t it?

It has the virtue of acknowledging that free healthcare isn’t actually “free” at all.

October 1, 2010

Freakonomics trailer

Filed under: Economics, Humour, Media — Tags: , , — Nicholas @ 16:23

Since reading the book(s), I often find myself in discussions using the term “incentives” (especially in the sense of perverse incentives: those which produce the opposite of the desired effect). I think there’s much value in this approach to problem solving, and I’m looking forward to seeing the movie.

Update: I guess I’ve gotten out of the habit of seeing movies at all. Freakonomics is in the theatres now, but I seem to have uninstalled the movie theatre information app on my iPhone . . . it figures: it doesn’t appear to be playing anywhere near here.

September 22, 2010

NFL still not setting the right example for concussed players

Filed under: Football, Health — Tags: , , — Nicholas @ 07:20

Gregg Easterbrook shows that the NFL’s thoughts about the proper way to address concussions still haven’t changed:

The core problem is that football coaches at the high school, college and professional levels are rewarded for winning games but not penalized for allowing their players to be harmed. A coach who sits a player down out of concern for the player’s health may pay a price, if a game is lost. A coach who sends a concussed player onto the field may never be penalized in any way if that player suffers another concussion. Human beings respond to incentives, and right now the coaches’ incentive is to be irresponsible with players’ health.

Yes, the culture of football macho contributes to the problem: Many players ask to return to action when battling injury, including neurological harm. But coaches are the ones who make the decisions. They’re the adults in charge. And their incentive structure is all wrong.

Coaches receive money and accolades if they mistreat players and win; they are not disciplined, or seemingly even criticized, if players are harmed. Same for the front office in the NFL, the athletic department in college and the athletic director in high school. If the team loses, the fans and boosters are furious. If players suffer harm, there are no consequences whatsoever for the people making the decisions. And at the high school level, legally they are caring for children!

August 27, 2010

Uncertain economic conditions mean weak growth

Filed under: Economics, Government, Politics, USA — Tags: , , , , , — Nicholas @ 09:01

As I’ve argued before, the economy won’t start to really recover until the political situation stabilizes. In an article from earlier this year, Robert Higgs makes this point very well:

The explosion of the federal government’s size, scope, and power since the middle of 2008 has created enormous uncertainties in the minds of investors. New taxes and higher rates of old taxes; potentially large burdens of compliance with new energy regulations and mandatory health-care expenses; new, intrinsically arbitrary government oversight of so-called systemic risks associated with any type of business — all of these unsettling possibilities and others of substantial significance must give pause to anyone considering a long-term investment, because any one of them has the potential to turn what seems to be a profitable investment into a big loser. In short, investors now face regime uncertainty to an extent that few have experienced in this country — to find anything comparable, one must go back to the 1930s and 1940s, when the menacing clouds of the New Deal and World War II darkened the economic horizon.

Unless the government acts soon to resolve the looming uncertainties about the half-dozen greatest threats of policy harm to business, investors will remain for the most part on the sideline, protecting their wealth in cash hoards and low-risk, low-return, short-term investments and consuming wealth that might otherwise have been invested. If this situation continues for several years longer, the U.S. economy may well suffer its second “lost decade” for much the same reason that it suffered its first during the 1930s.

Unfortunately, the incentives for politicians are biased toward meddling, so don’t anticipate a slowing down of political “fixes” any time soon. If the US mid-term elections later this year return a “gridlocked” government, the economy might start to adapt to the current conditions and only then will any significant growth begin to take place. Given a relatively static political situation, businesses can at least make some plans based on their regulatory/legislative conditions as they are. Until some kind of stability is established, no businessperson in their right mind will take on major new plans: entrenching your existing business is far safer, while trying to do something radically different incurs too much risk. Risk, that is, over and above the “ordinary” risk of expansion, launching new products, or entering new markets.

April 13, 2010

Expect to read more stories like this

Filed under: Britain — Tags: , , , , , , — Nicholas @ 12:01

Britain’s welfare support system was originally designed to provide temporary assistance — at barely-above-survival-levels — to workers and their families until the primary wage-earner could find new work. It wasn’t intended to provide this kind of support:

The Davey family’s £815-a-week state handouts pay for a four-bedroom home, top-of-the-range mod cons and two vehicles including a Mercedes people carrier.

Father-of-seven Peter gave up work because he could make more living on benefits.

Yet he and his wife Claire are still not happy with their lot.

With an eighth child on the way, they are demanding a bigger house, courtesy of the taxpayer.

Hard to blame ’em, really: if you can get substantially more through welfare support than you can by working, what’s the incentive to keep that job? Once upon a time, it was shame that would provide that extra spur to keep people in marginal economic circumstances from claiming welfare or other social benefits, as friends and neighbours would disdain them. These days? They’re probably envied by the next-door and down-the-street folks still dumb enough to get jobs.

At their semi on the Isle of Anglesey, the family have a 42in flatscreen television in the living room with Sky TV at £50 a month, a Wii games console, three Nintendo DS machines and a computer — not to mention four mobile phones.

With their income of more than £42,000 a year, they run an 11-seater minibus and the seven-seat automatic Mercedes.

But proof that material wealth does not translate directly into happiness, the Daveys still yearn for things they can’t yet have. But at least they’re not feeling burdened by feelings of guilt or shame:

She added: ‘I don’t feel bad about being subsidised by people who are working. I’m just working with the system that’s there.

‘If the government wants to give me money, I’m happy to take it. We get what we’re entitled to. I don’t put in anything because I don’t pay taxes, but if I could work I would.’

[. . .]

Mrs Davey, who spends £160 a week at Tesco, says she does not intend to stop at eight children. Her target is 14.

And she adds: ‘I’ve always wanted a big family — no one can tell me how many kids I can have whether I’m working or not.’

It’s true: in spite of all the other intrusions into everyday life by the British and European bureaucracies, there are still things they can’t tell you.

H/T to Jon (my former virtual landlord) for the link.

February 11, 2010

Britain to try new method of trimming defence budget: locking the generals out

Filed under: Britain, Bureaucracy, Military — Tags: , , , — Nicholas @ 08:40

It’s an unusual way of “[fixing] the counter-productive incentives within the system”:

Lord Drayson, the British arms industry’s man inside the Ministry of Defence, has moved to lock the heads of the armed services out of the room in which the Forces’ future is to be settled. This is being billed as an attempt to prevent interservice bickering, but it will leave the rapacious UK arms business facing almost no uniformed opposition in its bid to pocket more government cash.

The Financial Times, having seen a copy of a speech to be delivered by Drayson, reports that a new MoD committee set up to “review direction and affordability” will not include the heads of the army, navy and air force “because we need to fix the counter-productive incentives within the system”, according to Drayson.

“We need to make sure that the decisions made about capability are rigorously examined… from the perspective of Defence overall and not a single viewpoint within Defence,” the noble lord is expected to add.

A skeptic might assume that there’s no good reason for this, but there is a plausible explanation:

The RAF, left to itself, would squander fortunes on buying more Eurofighters and then turning them into a deep-strike force capable of penetrating strong enemy air defences — a thing that it is vanishingly unlikely the UK will need to do. The Army is currently planning to spend no less than £14bn recreating its heavy tank force, despite the fact that it is 20 years since that force went to war — and the general who commanded it then has since said that in fact the last real tank battles ever seen took place 20 years before that.

The Navy is also wasting money foolishly at the moment, not on aircraft carriers as everyone thinks — those are a good idea and a joint-service one to boot, and cheap in this context at £4-5bn — but on billion-pound unarmed missile destroyers.

October 29, 2009

There are many ways to destroy a neighbourhood

Filed under: Bureaucracy, Government, Law — Tags: , , — Nicholas @ 07:36

Chicago is contemplating one of the more effective ones:

Breaking down communities by creating incentives for friends and neighbors to betray one another is a much more effective tool in developed nations with less salient cultural cleavages a ruler can exploit. Creating distrust in society increases the public’s demand for government and reduces our ability to create (market and non-market) voluntary institutions to compete with government. If we think our neighbors are out to get us, we’re less likely to want to deal with them on a voluntary basis and more likely to demand they be controlled by government. Destroying community is good for government.

The Chicago city government seems to have realized this. It is considering a “Tax Whistleblower Program” which would pay people to rat on “tax cheats.” Grassers will most likely be paid a percentage of back taxes collected. The city officials are claiming that it’s “just another way of bringing people into compliance.” No doubt it will be an effective one too, since community can be a fragile thing.

All it takes is one neighbourhood busybody being financially rewarded for squealing on the guy down the street. Everything tends to snowball as trust evaporates and everyone starts to view their neighbours as potential threats.

September 30, 2009

Testing whether incentive pay for teachers improves student outcomes

Filed under: Economics, Education, India — Tags: , — Nicholas @ 12:13

A post up at Marginal Revolution summarizes a new paper by Karthik Muralidharan and Venkatesh Sundararaman, examining whether incentive pay for teachers (PDF) improves student performance:

1) Evidence comes from a very large sample, 500 schools covering approximately 55,000 students, and treatment regimes and controls are randomly assigned to schools in a careful, stratified design.

2) An individual-incentive plan and a group-incentive plan are compared to a control group and to two types of unconditional extra-spending treatments (a block grant and hiring an extra teacher). Thus the authors can test not only whether an incentive plan works relative to no plan but also whether an incentive plan works relative to spending a similar amount of money on “improving schools.”

3) The authors understand incentive design and they test for whether their incentive plan reduces learning on non-performance pay margins.

In the west, with most students being taught in publicly funded schools with strong teaching unions, these results will not be welcomed by the majority of school systems or unions. From the abstract:

Performance pay for teachers is frequently suggested as a way of improving education outcomes in schools, but the theoretical predictions regarding its effectiveness are ambiguous and the empirical evidence to date is limited and mixed. We present results from a randomized evaluation of a teacher incentive program implemented across a large representative sample of government-run rural primary schools in the Indian state of Andhra Pradesh. The program provided bonus payments to teachers based on the average improvement of their students’ test scores in independently administered learning assessments (with a mean bonus of 3% of annual pay). At the end of two years of the program, students in incentive schools performed significantly better than those in control schools by 0.28 and 0.16 standard deviations in math and language tests respectively. They scored significantly higher on “conceptual” as well as “mechanical” components of the tests, suggesting that the gains in test scores represented an actual increase in learning outcomes. Incentive schools also performed better on subjects for which there were no incentives, suggesting positive spillovers. Group and individual incentive schools performed equally well in the first year of the program, but the individual incentive schools outperformed in the second year. Incentive schools performed significantly better than other randomly chosen schools that received additional schooling inputs of a similar value.

I’m surprised that the results were so positive for relatively minor incentive bonus amounts.

July 14, 2009

The iPhone: wrecker of the cell phone industry?

Filed under: Technology — Tags: , , , , — Nicholas @ 12:26

Rather a bold claim, but Aidan Malley makes some good points:

Analyst Craig Moffett of Bernstein Research likens the relationship between Apple and AT&T as that between the former and music labels dating as far back as 2001, when Apple first had to ingratiate itself with labels as it incorporated music CD ripping into iTunes. Apple at first won important concessions and praise from its partners, only for them to regret it later as the iPod maker’s popularity left these companies at the supposedly smaller company’s mercy.

[. . .]

The attack is such that Apple has all but taken control of the partnership, according to the analyst. Now, the Cupertino company has “radically tilted” the normal balance of power against AT&T and cellular networks as a whole. If Apple preferred another carrier, many iPhone owners would switch to preserve the experience they already have; an incentive that forces carriers to keep the handset maker happy. At times, though, it also has the caustic effect of suggesting an conspiracy at the carrier to limit useful services, such as voice over IP calls, when cost or technical reasons are the real motivators.

And while the US government may be close to investigating exclusivity deals as possibly anti-competitive, Moffett argues that Apple’s presence in the marketplace has actually helped competition by forcing companies to keep reasonable service rates and let apps dictate business rather than network services. Government intervention could paradoxically hurt the industry by telling providers how much they could discount a phone and hardware developers which networks they would have to support.

I’d have to say he’s absolutely correct with the point on user loyalty . . . if Rogers stopped supporting the iPhone, I’d be moving my business to whoever took it over from Rogers. I’m certain that this is true of the vast majority of iPhone users. I was Bell customer for a long time, but the iPhone was enough inducement for me to switch cell phone companies.

That’s a pretty big club for Apple to use to get its own way in any negotiations with cell phone companies.

(Cross-posted to the old blog, http://bolditalic.com/quotulatiousness_archive/005580.html.)

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