Friday, January 3, 2014

Facebook v GM

Facebook has 5,000 employees and is worth $135 billion.  They made $7 billion in revenue.

GM has 200,000 employees and is worth $55 billion.  They made $150 billion in revenue. 

I understand that people are upset about income inequality but if you can create that kind of value with the help of so few people, in such a short period of time, you are going to get massively rewarded.  

We all want freedom and equality but we can't complain if the market assigns more value to a business that makes it's money when you click on pictures of your best friend's kid than the one that makes cars and trucks. If value creation is how we compensate CEO's in a free market then what are we so upset about?  

If CEO's were compensated based on how many people they could employ, then the system might look different...interesting idea but tough to get shareholders and creditors behind that notion. 

This is no knock on GM really...they make 30% more cars today than they did in 1979 with 66% fewer workers. That is just the results of innovation and technology.  

As labor costs rise, companies are operating with less people and CEO salaries are reflecting their ability to create value for shareholders.  We are all free to try and compete if we think a CEO is getting paid excessively. In our society, we can start our own company and take a smaller cut of the pay if that is what we think will drive value. 

I am not sure how to make it more fair than that. 

1 comment:

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