Hi tkc - a bite. Here's my response.
Hi cm,
Well, I enjoyed this post. Wave as the shield of virtue. Defence of American intellectual property as its cause. Wave as the pious servant of American values. The Spragues as the motive force behind Wave. And thus, in spite of your reservations, the remuneration of the Spragues justified by the character of their crusade.
That is bound to be a popular message amongst Wave's investors. It will earn stars from those folks who want someone to justify their monetary investment in moral terms. It feels nice to be the good guy and to see the other lot as villains. Those who kick up a stink are - thus - defending villainy.
Perhaps not your intention, but of course that is how it is received by some.
It may well be a consequence of what it is doing: but I don't see this company as primarily existing on a moral plain, or as being motivated by the self-sacrificing desire to save civilisation. I see it first as an entity created to make a return. And I see it second as pursuing the modelling of an idea which has certain uses. Some of these uses may be good and some may be evil, but most operate on a model that is neither good nor evil, but that are valuable to one extent or another.
From the historical viewpoint, from what I gather, the genesis of Wave's operation was to build a method of measuring and enabling certain sorts of transactions - and then to tax them. It has morphed, more by the force of market necessity than righteous intent, into a company which hardens client side equipment, enforces equipment authentication and makes cloud services more secure. As a consequence, it also protects the use, storage and exchange of valuable information: and the potential beneficiaries of this include sovereigns, content producers and end users.
So Wave's technology affects the relationship of individuals to groups of various kinds, and of groups to individuals. It hopes this technology will be used to prevent the harm of information theft, but its possible cost is that it may be used to enforce the interests of incumbency over those of innovation: the enforcement of rules that may have little social benefit or the prevention of tinkering, for instance.
I say this not because I think Wave is a bad company, or that is a good one. It is introducing a technology which will have effects. These effects change the relationship between the internet's users in ways that I think are quite profound. You think so too. But it is important - probably to both of us - to be careful not to cherry pick only the good ones.
In this sense, Wave is a company, like other companies. Folks who provide pharmaceuticals to the world do something which we generally perceive is good, but unintended side effects still kill a small number of patients. To some, even cures can be harmful.
Does this mean that the folks who run those kinds of companies should be treated as if they are saints? Should the fact that drugs cure a whole lot of people mean we shouldn't care so much about managers' compensation? Or should they be measured on the normal basis that such folks are measured?
For me, compensation is something you want to be careful about. What controls are in place? Are the interests of the company's key people aligned with those of shareholders? Is there some discipline in the awards given to insiders? Are the interests of shareholders properly represented?
You see this. You are aware that the character of previous compensation arrangements seems to show nothing of the character of personal sacrifice you yourself think of as identifying individual virtue.
And yet ... you seem to want to subsume it behind this notion that they are doing something virtuous for everyone and therefore - if I am interpreting you correctly - we should tolerate such largesse.
Okay - I understand that. But in such a model, what discipline would you impose? If a 400% increase in bonuses over two years isn't something that sets an alarm bell ringing, how about 1000%? How about 5000%? Where do shareholders' interests in making a return mean something?
Let's ask the same question in a different way. I see that we have a CEO who is a member of a family. All other CEOs have families. Why shouldn't their family members also be employed in senior positions in those companies? Why shouldn't we presume that genetic preference is an important differentiator in corporate skill? Why not let Steve Jobs' sister run Apple?
For myself, I think it is a worrying thing when a public company has a private character. The financial document which discloses that information is an important element in highlighting the risk. And using a kind of populist and emotive shroud to provide cover against acknowledgement of the risk - and the signs that the risk of indiscipline is real - is not an ideal foundation for discussion. I don't suppose that is your intention. But I think that is the effect. You have created a Manichaean fabric out of a conversation about the compensation of family members in a public company.
The question is not so much - is Wave doing a good job? It is more granular than that. It is - what controls are in place to defend shareholders' interests against those of family members?
To me, the answer isn't clear. First, when WXP failed, the architects of its strategy - the family - were retained, while those who were trying to implement it were let go. Does that imply family preference to you? It appears that way to me. Within a few years, those same family members are receiving vastly increased bonuses: their pay, taken as a whole (salary plus bonuses), appears to be increasing at a rate far in excess of other employees of the company. Does that imply family preference to you? It appears that way to me.
How then does one create any kind of discipline which defends the interests of shareholders against those of family members?
It isn't easy. Individual shareholders are small creatures and a company is a large one. On the other hand, a skunk is a small creature but he has a clever strategy. He creates a stink. I think that is what shareholders should do when confronted with an issue of this type.
Or - to prefigure those who will always make the observation - they can just sell and move on. That is the kind of polar view. Accept or reject. As if there is no temperate zone between the poles. But for myself, I prefer the skunk strategy. ;-)
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