One of the big issues here is that once employees start selling common stock, the strike price of the options can no longer be set at a large discount to the latest valuation as it can when the only transactions are the preferred stock shares that are sold when the company raises money from VCs.
One of the most attractive things about employee stock options is that the strike price is often set at 30-40% of the valuation of the latest financing round. So a company that just raised (preferred) money at a $500m valuation can give their employees options with strike prices around $200m or less. Therefore, the employee can believe that they have a "locked-in" gain day one.*
If employees sold their common shares at anywhere near fair value at the same time the company was raising the round, they would likely sell at a price between $400m-$500m a very slight discount to the preferred shares. Any future option grants given would have to have a strike price reflective of these recent common-stock transactions, and companies would no longer be able to use the low strike prices of options to attract employees.
Obviously, this is just one trade-off among many and in no way means that companies shouldn't allow more sales of employee common stock over time, but its worth understanding the many reasons companies currently are resistant to doing so as much as individual employees would like.
*Obviously, common shares should be priced at a discount to preferred shares but almost everyone I've talked to in the VC/startup community believes that the 60-70% discount applied is extremely generous as it implies that up 60-70% of the value the VCs investment is in downside protection (ie the debt-like element) rather than upside potential (ie the equity-like element), a pretty nonsensical amount for a high-risk, asset-light VC investment.
You're discounting the value of preferred stock vs common stock. Funding rounds sell different series of preferred stock. The relationship from common to preferred stock is loose at best, despite what any 409a "valuation expert" claims.
Is there any reason to believe that private prisons are significantly worse than publicly run prisons?
I agree that the U.S. is badly in need of major reforms in its criminal justice system, but is there any reason to believe that society is better off with exclusively publicly run prisons?
Private prisons may do some regrettable lobbying on behalf of longer prison sentences, but I'm pretty sure that the corrections officers unions (most of whose membership works in publicly run prisons) is a far stronger political force.
It seems as though the students' activist energy would have been better used fighting the policies of mass incarceration rather than the private companies who do the government's bidding in applying them.
Private prisons are widely acknowledged as being utter hell holes, and spawn corruption at the highest levels.
A description of a Youth "correctional" facility in Mississippi:
"Federal Judge Carlton Reeves wrote that the youth prison "has allowed a cesspool of unconstitutional and inhuman acts and conditions to germinate, the sum of which places the offenders at substantial ongoing risk."
http://www.npr.org/2012/04/24/151276620/firm-leaves-miss-aft...
Also, there are things like the "Kids for Cash" scandal:
"Two judges, President Judge Mark Ciavarella and Senior Judge Michael Conahan, were accused of accepting money from Robert Mericle, builder of two private, for-profit youth centers for the detention of juveniles, in return for contracting with the facilities and imposing harsh adjudications on juveniles brought before their courts to increase the number of residents in the centers."
https://en.wikipedia.org/wiki/Kids_for_cash_scandal
Not to mention the that the private prison industry lobbies for harsher sentences and basically are a bunch of soulless vampires.
Prisons are already getting paid based on their capacity and not occupancy, so sentencing would not affect their bottom line the same way public prisons would be.
Yes it would, capacity is created to match expected occupancy, increases in sentences pre-empt the contracting of greater capacity for the expected increase in occupancy. All but the smallest increases in sentencing duration equate to additional prisons, not merely the picking up of some slack in existing ones.
Was actually just reading today that several states are being "sued" by private prisons because they have guaranteed minimum occupancy clauses that the states are not "meeting"
Do unions count as public entities or private ones? Because they have a lot of motivation, and a lot of money, and a lot of success of converting the former into political clout. But somehow I don't see their motives questioned as often as "motivation to maximize profits".
There are a lot of companies that extract profits from what can be regarded as other's misfortune - from hospitals to computer security specialists. However that does not necessarily means that hospitals promote disease and computer security professionals routinely spread malware and deliberately compromise their clients' security, to boost their business. Something better than "they have motive to do so" would be required for that claim.
The difference is that patients can choose their hospital, so the hospital has an incentive to have a reputation for the best care. In the case of prisons, the customer and the user are different people.
This is true, but I see no difference here in private or state prison - in both cases agent problem exists, and in both cases there's no choice for the "user". The only difference is that if there are two prison companies, and one of them is really bad, citizens can fire it (through pressure on their elected representatives) and hire another with relative ease. If all prisons are owned by the state, you can't fire the state and the status quo is protected by the powerful and concentrated effort of the public worker's unions, which has clout that is hard to match or overcome. So I don't see how private companies make things worse, even taking into account the agency problem. To consider if private companies are worse or not, it is not enough to find a problem in private company, it is also necessary to show that the same (or worse) problem is not present in the alternative, which I don't see happening here.
"The only difference is that if there are two prison companies, and one of them is really bad, citizens can fire it (through pressure on their elected representatives) and hire another with relative ease."
You don't honestly believe that, do you? For one, you're assuming that enough citizens will actually care enough to make this an issue. For two, you're discounting the number of people who think that anything other than a dank, dark dungeon where people are chained to the walls is "coddling" prisoners. Third, I do not buy the schlock that is the argument "private entities are always better than public ones."
Again, you are missing the important point here. Let me reiterate it. When you evaluate two alternatives, it is not enough to say "A is bad for these reasons" or "B is good for these reasons". You need to actually compare them, i.e. say "on this metric, A is better than B" or "on this metric, A is worse than B".
So if we apply this to your argument, we see that you argue that (most) citizens do not care, so it is hard to gather clout to fire bad private company. Let's assume for the sake of argument that this is true. How this makes government-run prison better than private? If citizens do not care, they also wouldn't care if prisoners were abused in government-run prison. Moreover, if some citizens care, what is easier for them to overcome - a lobby of one private company (which can be, ultimately, fired, its reputation destroyed, and in extreme cases, whole company bankrupt and dissolved) - against which other private companies and lobbies can be also used as allies, or the alliance of state bureaucracy and public employees unions, which can not be seriously hurt (most of their power is constitutionally protected or at least enshrined in the law so hard that you need truly exceptional clout to change it), which have access to vast amounts of budget money and control well-organized and battle-hardened political machine with national support? What is easier to fight - the ones that have the money or the ones that have the money, the law, the executive power, the people, the press and the human resources? I'm afraid the comparison doesn't come in the favor of your point.
>> Third, I do not buy the schlock that is the argument "private entities are always better than public ones."
You do not have to buy it. But if you intent to seriously evaluate it - as opposed to dismissing it without consideration because it does not fit your fixed ideological biases - you have to use proper tools. Such as actually comparing the benefits and disadvantages of both, instead of saying "this is crap, because it is". It is not about always, it is about really thinking about it as opposed to not even bothering.
I'm not missing anything. I'm asking you when you've ever actually seen something like that happen. The answer is you haven't. So saying that the public can "fire" a private prison is worthless as not only do the public not bother, but most of the private prisons have contracts making it difficult to fire them.
No, the answer is it happened, and it can be discovered by simple search, which for some reason completely incomprehensible to me you neglected to do. For example:
>> Private companies have a greater motivation to maximize profits than public entities do.
Corrections officers unions have strong motivations to keep prison populations high as well and unions tend to be stronger in the public sector than the private sector so its not obvious that private prisons increase the aggregate political pressure for high prison sentences.
This seems like a serious inversion of cause and effect. Our problems with prisons pre-dated the growth in private prisons and private prisons remain a small fraction of the overall prison industry so its hard to see how private prisons could be the primary source of the problem.
This is true, but publicly run prisons are subject to greater transparency because of things like the Freedom of Information Act which would not apply to private firms by default, only by contract.
>Corrections officers unions have strong motivations to keep prison populations high as well and unions tend to be stronger in the public sector than the private sector so its not obvious that private prisons increase the aggregate political pressure for high prison sentences.
It's not about prison sentences. It's about the poor conditions of private prisons and the rampant abuse there.
Haven't looked at this closely, but I would think corrections officers would care about keeping their jobs and increasing their pay, and perhaps reducing their work (by lowering the prisoner/officer ratio).
Those incentives seem benign compared to a private corporation, which would be incentivized to increase the prisoner population (build more prisons, more revenue), and increase the prisoner/officer ratio (more profits). These changes would have a negative impact on prisoners, officers, and society at large.
How about it just seems morally wrong to create a business where the incentive is increasing imprisonment. This ranges from not just lobbying efforts, and in some states iirc, it's still correction officers working there. To over-reporting and escalating minor infractions so as to deter parole.
I understand that scandals happen in government managed prisons as well. However, the saying two wrongs don't make a right comes to mind. In this case the business model is morally wrong, plain and simple.
Can I first say your question is an excellent one and I'm not sure I can answer it, however i wanted to share my thoughts.
In an ideal world society would not want people to go to prison because of of the cost to society. There are so many cost from physical, legal, emotional/behavior, health, recurrence, future generations and etc. So as a society we would want to avoid people going back to prison and we should support initiatives that lessen our incarceration rate. Now despite what some on reddit seem to feel no matter how much money you throw at this there will always be people you can't rehabilitate. But if we could rehabilitate lets say 10-20% more of people who would be repeat offenders how much would society save. Now the question we have there is would the people who enforce the law like that? If we have less crime that means less police, judges, DAs, jail guards, etc. I'm guessing they all want to keep their jobs so there is little incentive for them to change the system and if I have learned anything incentive is everything. They do have some incentive in the fact that they do want their communities to be safe and healthy.
However when you put in for-profit prisons you can take any incentive out of the picture. They get paid per inmate and often have agreements where their prisons stay at x% of capacity. They don't want to rehabilitate but actually have the opposite incentive which is to crate repeat offenders to keep their cash flow going.
So I'll say society/public prisons have some reasons to reduce prison populations and rehabilitate; private prisons have no such incentive and would actually prefer people to stay/return to prison.
Private prisons do not get paid per inmate, they get paid based on capacity. The "Kids for Cash" scandal was not about getting more inmates, it was about filling existing capacity and triggering the need for more private prisons.
> Nearly two-thirds of private prison contracts mandate that state and local governments maintain a certain occupancy rate – usually 90 percent – or require taxpayers to pay for empty beds. In Arizona, three private prisons are operating with a 100 percent occupancy guarantee, according to Mother Jones. There’s even a lockup quota at the federal level: The Immigration and Customs Enforcement’s detention budget includes a mandate from Congress that at least 34,000 immigrants remain detained on a daily basis, a quota that has steadily grown each year, even as the undocumented immigrant population in the United States has leveled off.
Direct incentives for financial gains from higher incarceration rates, and kicking that money back to lobby for laws that put more people in prison at tax payers expense...
The problem with private prisons is the conflict of interest.
As a private for-profit prison employing what is effectively cheap slave labor, you have zero incentive to actually reform or to reduce the amount of people who become imprisoned or the amount of time they are imprisoned for. You are in fact financially incentivized to do the opposite; classic perverse incentive.
As someone else in here posted,
The Corrections Corporation of America noted relaxation of drug enforcement efforts as a RISK FACTOR in their 2011 10-K filing:
"The demand for our facilities and services could be adversely affected by the relaxation of enforcement efforts, leniency in conviction or parole standards and sentencing practices or through the decriminalization of certain activities that are currently proscribed by criminal laws."
Does this not scream "conflict of interest not in the interest of the greater good" to you? It does to me.
For an example of what happens when you allow this on a larger scale, see North Korea. Not a country anyone should be taking after!
For what it's worth, I just so happen to have initiated a monthly $100 donation to http://innocenceproject.org/ just this morning after reading this article:
private prisons seem to be the perfect example of when ethics are more important than profit motive
And when all costs (even extraneous societal ones) are considered in an all encompassing cost model, outlawing them would be the optimal course of action, anyway
The price of some things just seem severely disconnected from their actual value (or lack thereof)
Why ethics is more important with prison than with other things, like finance, health, food, drink, etc.? I would assume if I let somebody cut up my body or brain while I'm unconscious and pay tens or hundreds of thousands of dollars for it, I'd be a bit worried if the said person had bad ethics, wouldn't you? Still, I see not many are having problem with brain surgeons not being government employees, as far as I can see.
>> And when all costs (even extraneous societal ones) are considered in an all encompassing cost model, outlawing them would be the optimal course of action, anyway
That would sound much stronger if it were backed by an actual consideration of the cost in an actual model, rather than a blanket unsupported statement of the outcome.
>> The price of some things just seem severely disconnected from their actual value (or lack thereof)
Or maybe their price reflects the actual value instead of the value you think they should have. How do you discover the actual value (not for you personally, but for the thing that concerns the whole society) anyway? Do you hold a vote? What if vote goes in favor of privatized prisons?
Why should hiring managers be required to give you preferential treatment vs. someone born in a much poorer country who happens to be willing to do the same (or, likely, better) work for a lower cost?
Its a cute fact that you and the hiring manager were both lucky enough to have parents who lived in the U.S. when you were born, but that doesn't make you a better or more worthy person than someone born in a poorer country. (You already have access to a stronger social safety in the form of unemployment, social security, subsidized healthy insurance, etc if you find yourself unable to compete with foreign talent.)
The idea that some people should be considered more worthy than others by our society just because of where they were born or who there parents are is the definition of xenophobia and racism.
You should read up on the literature on brain drain. In addition to your comment being morally abhorrent ("people born in poor countries should be forced to stay there and fix shit so people born in rich countries don't have to deal with it") its also not well supported by the facts. Giving people the chance to get high returns from their education incentivizes a much larger group of people to invest in their education than end up leaving the country.
Given that the same worker ends up making 2-3x in a developed country what they would with their exact same skills in a poorer country and ends up sending much of that extra money back in the form of remittances, immigration is generally a positive force for those "left behind" (not to mention those who immigrate).
Why does your cost-benefit calculation not include the benefits to those foreign workers who are allowed to compete for jobs in the U.S.?
The academic literature* shows much, much larger productivity and income gains to those who migrate to richer countries than any negative effect to native workers. Even if an influx of immigrants depressed some existing Americans' wages by a small amount, that delta would only pale in comparison to how much better of the immigrants would be.
Do you oppose efforts to educate more American's as computer scientists? This too would "depress" the wages of existing computer scientists but you would (hopefully) find it abhorrent if someone used your "wage depression" logic to stop teaching CS in inner-city schools.
Unless you think that the lives of non-American's are not worth considering, these hugely positive impacts of immigration should be part of your calculation.
Would you willingly train/mentor somebody if you knew the outcome would be that she would compete for your job personally, or that your wage would go down 20%?
Frequently calls for equality are made by those who imagine their own situation could not possibly worsen; it's always some anonymous others who will pay.
I agree it sucks for anyone to lose their job, but using that as an excuse for xenophobic policy is a non-sequitur.
Do you honestly think there would have been a national uproar against Disney if they'd asked their employees to train other Americans?
Try replacing "foreign H1B worker" with "person of another skin color" and see if your arguments don't sound abhorrent. If you think the later sounds racist, the former is xenophobic.
>> it's always some anonymous others who will pay
Couldn't agree more. In the case of immigration and labor policy, the anonymous others who pay are those that didn't have the good fortune to be born in this country.
It's more like replace "H1B worker" with "anybody". The idea is that tech workers are being asked to expand the labor pool and basically contribute to eroding their own value without realizing it. It doesn't matter the race gender or citizenship; by reducing the scope to individuals instead of anonymous groupings it becomes clear what is happening.
It is probably noble to say that you would personally hand your own job over to somebody else. But of course it is never framed that way even though that is what is actually happening.
I'd be open to hearing your criticism of policies that allow Disney to have [American] workers train their foreign replacements that don't invoke any sort of xenophobia or racism.
The whole idea that it would be wrong or humiliating to have to train someone who had the gall to be born in a different (and generally poorer) country is based on the notion that Americans should be treated with more regard than people born elsewhere. If Disney had fired 200 Americans and replaced them with 200 other Americans, would there have been an uproar? Almost certainly not. Since they only difference is the new workers' nation of origin, how is this not a xenophobic or racist reaction?
Lots of issues are complex but complexity is not an excuse for xenophobia.
> I'd be open to hearing your criticism of policies that allow Disney to have [American] workers train their foreign replacements that don't invoke any sort of xenophobia or racism.
If their replacements were white guys from Texas it would still be equally humiliating and offensive for people to be asked to train their lower-wage, less-skilled replacements as a condition for receiving severance. Come on. And unlike citizens, people on work visas have no real leverage to negotiate for higher wages (since their work visas are tied up with the company they work for or at least their ability to find a new sponsor), so the idea that they couldn't possibly suppress wages seems silly.
Is Disney going to pay the new 200 employees the same wages, and work them the same? Are the new employees going to ask for the same pay, and ask for the same treatment? Do they even have an empowered position to ask for that?
Maybe not, but even if not, why are you so sure that would be bad?
Let's say the foreign workers would have made the equivalent of $20k in their own country but will now make $60k for Disney in the U.S. vs. the American workers who made, say, $80k but will now end up settling for new jobs that only pay $60k (in addition to their unemployment, social security and subsidized health insurance and other social safety net features that the foreigners wouldn't have access to in their home countries). Are you really sure this is a bad thing for the world?
(By the way, the stylized figures above are very generous to your anti-immigration case, since while there is plenty of evidence that immigrants 2-3x their incomes by working in the U.S., there is no reason to believe that American's actually suffer 25% income losses to do competition from immigrants. Most studies show no change or a positive impact to native workers' wages and the few that show a negative impact show at most a ~5% decrease.)
> (By the way, the stylized figures above are very generous to your anti-immigration case, since while there is plenty of evidence that immigrants 2-3x their incomes by working in the U.S., there is no reason to believe that American's actually suffer 25% income losses to do competition from immigrants. Most studies show no change or a positive impact to native workers' wages and the few that show a negative impact show at most a ~5% decrease.)
Why do you think Disney would replace a ton of workers with inexperienced ones unless they're saving on wages?
yES dISNEY IS SAVING ON WAGES FOR SURE..Although I personally do not agree with using H1B to displace workers I also think American IT workers need to think about what kind of wages they expect for outdated and rapidly changing IT knowledge.. I have an excellent example in my own company.. A 48yr old American IT worker who makes close to 120-130K per annum... Let me tell you he does a good job but his work merely includes assembling PC's for employees, fixing bugs (rebooting Virus scan) and writing minor scripts once in a year to ensure email and server security. Majority of the time he just makes sure that all the employees machines are running smoothly. In terms of education he has an Associate degree in STEM and has been working for the company for 15 years.His position title says Systems Engineer. However a Systems Engineer in Google might actually be working on the Driver less car. Now the reality is that today the work that he has been doing can be taken care of by anyone even without a technical background.. so why pay him 120K? His knowledge was unique and fresh when he joined in 1998 but now in 2015 he is still in the same position , has the same qualifications and doing the same work everyday.. I am not blaming him..for this .. He is getting 120K for a skill set which is obsolete.. why would he think of trying something more or advancing his career..Since our company has a very small IT staff they might not take a step like Disney but otherwise this guy would have been long replaced. If I were him I would look towards more active roles within the company or else If I am so attracted to IT then I would go back to school update myself with the IT of Today and apply to a company that might need my new skills..
Overall my point is that the technical world is such that today nobody wants to buy an iphone 3GS today. Even if there are some buyers then they definitely do not want to pay $600 to buy it
One of the most attractive things about employee stock options is that the strike price is often set at 30-40% of the valuation of the latest financing round. So a company that just raised (preferred) money at a $500m valuation can give their employees options with strike prices around $200m or less. Therefore, the employee can believe that they have a "locked-in" gain day one.*
If employees sold their common shares at anywhere near fair value at the same time the company was raising the round, they would likely sell at a price between $400m-$500m a very slight discount to the preferred shares. Any future option grants given would have to have a strike price reflective of these recent common-stock transactions, and companies would no longer be able to use the low strike prices of options to attract employees.
Obviously, this is just one trade-off among many and in no way means that companies shouldn't allow more sales of employee common stock over time, but its worth understanding the many reasons companies currently are resistant to doing so as much as individual employees would like.
*Obviously, common shares should be priced at a discount to preferred shares but almost everyone I've talked to in the VC/startup community believes that the 60-70% discount applied is extremely generous as it implies that up 60-70% of the value the VCs investment is in downside protection (ie the debt-like element) rather than upside potential (ie the equity-like element), a pretty nonsensical amount for a high-risk, asset-light VC investment.