Your Offer Letter Is a Portfolio Decision

When buybacks drive returns and equity replaces wages, your comp structure becomes your biggest financial bet.

Imagine a software engineer at a large tech company waking up to a stock alert. Overnight, their employer announced $200 billion in AI infrastructure spending. The stock dropped about 10%.^[1][2] Nothing about this engineer’s work changed. Their code still ships. Their performance review still reads “exceeds expectations.” But their total compensation just took a five-figure hit because of a capital allocation decision made in a boardroom they’ll never enter.

This is the new reality for a growing share of the workforce. Your paycheck isn’t just what hits your bank account on the 15th and 30th. It’s also what happens to a stock price you can’t control, driven by decisions you didn’t make, in response to forces you may not fully understand.

And the uncomfortable part is that opting out might cost you more than opting in.

Where the Money Actually Goes

When a company gets more productive and more profitable, where does the extra money go?

For most of the 20th century, a reasonable answer was “partly to shareholders, partly to workers.” Wages grew roughly in line with productivity. BLS data shows that productivity and compensation tracked closely for decades, then diverged starting in the 1970s.^[3] The gap has widened since, though its exact size depends on whether you measure wages or total compensation (including benefits) and how you adjust for inflation.^[4]

One major channel for that shift is share buybacks. When a company earns more profit than it wants to reinvest, it faces a choice. Pay dividends. Buy back its own stock. Raise wages or headcount. Or sit on the cash.

Over the past two decades, buybacks have won this contest by a wide margin. S&P 500 buybacks ran close to $1 trillion in trailing twelve-month totals as of mid-2025, according to S&P Dow Jones Indices data summarized by First Trust.^[5] Buybacks eclipsed dividends as the preferred payout method around the turn of the century and have mostly led ever since.^[6][7]

The math is straightforward but underappreciated. When a company buys back 3% of its outstanding shares in a year, earnings per share rise by roughly 3% even if total earnings don’t grow at all. Multiply that effect over a decade and it compounds. Buyback-heavy cohorts of stocks have historically outperformed broad benchmarks, according to S&P Dow Jones Indices research on the S&P 500 Buyback Index.^[8] The contribution to any individual investor’s realized return depends on the company and the period, but the mechanism is real. Buybacks can raise per-share metrics by reducing share count, concentrating ownership among fewer holders and supporting the prices that show up in your brokerage account.

The scale of this shift shows up in the aggregate numbers. After inflation, average hourly wages are up 3% since the end of 2019. Corporate profits have climbed 43% over the same period.^[9] Households’ stock wealth is now almost 300% of their annual disposable income, compared with 200% in 2019.^[9:1]

This isn’t inherently bad. Buybacks are a legitimate capital allocation tool. If a company has no better use for its cash, returning it to shareholders through repurchases can be efficient. But the distributional effect matters. The value flows to people who own shares. Not to people who only earn wages.

How Value Is Captured

Think of corporate revenue as water flowing downhill through a series of pools.

At the top, revenue comes in. The first pool it fills is operating costs, and that includes wages for the workers who generate that revenue. The next pool is reinvestment (R&D, capex, and growth initiatives). After that comes the shareholder return pool (dividends and buybacks). And finally, there’s the equity compensation pool, where companies grant stock to employees as part of their pay packages.

What has changed over time is the relative size of those pools. The reinvestment and shareholder return pools have grown. Labor received 58% of gross domestic income in 1980. By the third quarter of last year, that share had fallen to 51.4%, while profits’ share rose from 7% to 11.7%.^[9:2] Researchers at the Federal Reserve Bank of St. Louis have documented the trend and explored its drivers, from globalization to capital-biased technological change.^[10] The shift is even starker inside individual companies. IBM had a payroll of nearly 400,000 in 1985. Nvidia is nearly 20 times as valuable and five times as profitable (inflation-adjusted), yet it employs roughly a tenth as many people.^[9:3] In the past three years, Alphabet’s revenue grew 43% while its headcount stayed flat.^[9:4]

And the equity compensation pool has become the bridge. It’s a way for companies to let workers participate in shareholder-level returns without raising their fixed cost base.

This creates an interesting dynamic. If you work at a company that grants meaningful equity, you’re drinking from two pools at once. You get a wage, and you get a small ownership stake. If you don’t get equity, you’re only drinking from the pool that’s been shrinking.

And equity comp isn’t evenly distributed across the workforce. It clusters among college-educated workers in knowledge-economy industries, the same group already benefiting from a widening education premium. Between 1981 and 2005, the mean earnings gap between high school graduates and those with college education doubled from 48% to 97%.^[11] Equity comp amplifies that gap further, layering capital-like returns on top of already-higher wages.

The framework helps explain why compensation conversations have shifted so dramatically in tech and finance. Base salary negotiations matter, but they’re not where the growth is. The growth is in the equity grant, because that’s where value capture has been moving.

The Power-Law Problem

This is where equity comp gets uncomfortable.

Wage income, for most people, follows something close to a normal distribution. There’s a range, and most people cluster somewhere in the middle. The spread is real but manageable.

Equity income follows a different pattern entirely. Outcomes are highly skewed. A small number of companies generate outsized returns, and everyone else lands somewhere between fine and terrible. The distribution of stock returns has fat tails, meaning the winners and losers are more extreme than most people intuitively expect. That skewness is what this article’s title refers to.

If you joined Amazon in 2015 and held your RSUs, your equity comp likely grew several times over. If you joined a company that went sideways or down over the same period, your “total comp” looked very different from what the offer letter promised.

The conventional wisdom here is clean and simple. “Sell your RSUs the minute you get them.” Diversify immediately. Don’t let employer concentration risk ruin your financial plan.

That advice is mechanically correct. From a pure risk-management standpoint, concentrated single-stock exposure is hard to justify. You’re essentially making a leveraged bet on one company with a meaningful slice of your net worth.

But the advice also ignores some important realities.

First, many employees feel like selling on vest is leaving money on the table, especially at high-growth companies. The behavioral pull toward holding is strong, and not always irrational. If you genuinely believe your company is undervalued and you have an informational edge (being careful about what that means legally), selling immediately throws away optionality.

Second, for private-company employees, “sell on vest” isn’t even an option. Consider Stripe, founded in 2010, where employees have been holding equity for about sixteen years without a public listing.^[12] The company has run periodic tender offers to provide some liquidity, most recently at a $91.5 billion valuation in early 2025.^[13] But those windows are infrequent and limited. Co-founder Patrick Collison has said there’s “no rush” to go public.^[14] For employees, the equity is real on paper but not easily converted to cash when they need it.

Third, the gap between “what you should do” and “what the system allows you to do” is wide. Vesting schedules, lockup periods, trading windows, and tax consequences all constrain the neat “diversify immediately” playbook.

The Equity Comp Sniff Test

Instead of treating equity comp as binary (hold everything or sell everything), try thinking about it as a portfolio allocation problem with four variables.

Concentration. What percentage of your investable net worth is tied to your employer’s stock? Financial planners commonly flag 10–15% as a threshold where single-stock concentration starts to meaningfully affect portfolio risk.^[15] If you’re above that range, you’re making an active bet whether you intend to or not.

Liquidity timeline. When will you actually need this money? If your liquidity needs are 5+ years out and you can stomach volatility, holding more may make sense. If you’re saving for a house in two years, concentration risk hits differently.

Conviction. How much do you actually know about your company’s prospects versus what you want to believe? Be honest. Most employees overestimate their informational edge. Your perspective from inside the company is valuable but also biased by proximity.

Downside tolerance. What happens to your financial plan if this stock drops 40%? If the answer is “I delay retirement by two years” or “I can’t make my mortgage,” you have too much concentration regardless of your conviction level.

This isn’t a formula. It’s a sniff test. And the uncomfortable conclusion for many people is that the right answer changes over time. Early in your career with few assets, RSU concentration might be an acceptable bet. As your net worth grows and your financial obligations increase, the same concentration becomes harder to justify.

The Bigger Picture

Zoom out and the pattern is clear. We’re living in an economy where the returns to owning things are increasingly outpacing the returns to doing things. Piketty formalized this as r (return on capital) > g (economic growth), the observation that when the rate of return on capital exceeds the rate of economic growth, wealth concentration rises almost automatically.^[16] Buybacks accelerate that mechanism at the corporate level. Equity compensation is the bridge that lets some workers participate. But it’s a bridge with tolls, and those tolls include concentration risk, liquidity constraints, tax complexity, and the psychological challenge of watching your net worth swing with every earnings call.

And if you’re waiting for a correction, history isn’t encouraging. Scheidel’s survey of inequality across civilizations finds that macroeconomic crises produce only short-lived effects on the distribution of income and wealth. Absent a major shock, stability tends to favor the continuation of whatever inequality dynamics are already in motion.^[17] The capital-vs-labor tilt we’re living through looks durable.

Comp negotiation is financial planning. Every offer letter is a portfolio allocation decision, and most people sign them without a framework for thinking about it that way. The Equity Comp Sniff Test is not a solution. It is a prompt to make the allocation explicit before the next earnings call does it for you.

If buyback volumes keep growing relative to wage growth, and if AI reduces labor bargaining power by making some roles less scarce, the gap between median wage growth and median total comp growth should widen over the next three to five years. What would change that picture is evidence that AI-driven productivity gains flow to wages rather than profits, or that labor scarcity in key sectors keeps bargaining power intact. The software engineer who opened that stock alert already found out what kind of bet they’d made.

This post is for educational and informational purposes only. It is not personalized financial advice. Consult a qualified professional for decisions specific to your situation.

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Works Cited

1. Dana Mattioli et al., “Amazon Shares Sink as Company Boosts AI Spending by Nearly 60%,” Wall Street Journal, updated February 6, 2026. https://www.wsj.com/business/earnings/amazon-earnings-q4-2025-amzn-stock-996e5cc2

2. Brody Ford, “Amazon to Spend $200 Billion on AI Infrastructure,” Bloomberg, February 5, 2026 (updated February 6, 2026).

3. Michael Brill et al., “Understanding the Labor Productivity and Compensation Gap,” U.S. Bureau of Labor Statistics, June 6, 2017. https://www.bls.gov/opub/btn/volume-6/understanding-the-labor-productivity-and-compensation-gap.htm

4. Economic Policy Institute, “The Productivity-Pay Gap” (regularly updated series). Note that EPI’s methodological choices are debated, but the direction of divergence is well documented across multiple sources. https://www.epi.org/productivity-pay-gap/

5. First Trust Portfolios, “S&P 500 Index Dividends & Stock Buybacks,” October 2, 2025 (summarizing S&P Dow Jones Indices buyback data). Trailing-12-month buybacks near $997.8B ending June 2025.

6. Susan Dziubinski, “Stock Buybacks Are Booming in 2025. That’s Bad News for Dividend Investors,” Morningstar, October 8, 2025.

7. Jeremy Schwartz, “Dividends, Buybacks and the Prospect of Future Returns,” WisdomTree, June 2, 2016.

8. S&P Dow Jones Indices, “Examining Share Repurchases and the S&P Buyback Indices,” research report. Covers buybacks, share count reduction, and index construction tied to repurchase behavior.

9. Greg Ip, “The Big Money in Today’s Economy Is Going to Capital, Not Labor,” Wall Street Journal, February 9, 2026. https://www.wsj.com/economy/jobs/capital-labor-wealth-economy-2fcf6c2f

10. Rosanne Scott, “Why Is the Labor Share Declining?” Federal Reserve Bank of St. Louis Review, October 22, 2020. https://research.stlouisfed.org/publications/economic-synopses/2020/10/22/why-is-the-labor-share-declining

11. Walter Scheidel, The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century (Princeton University Press), page 412.

12. Baillie Gifford (Scottish Mortgage Investment Trust), “Stripe | Holdings” (states Stripe founded in 2010).

13. Anna Irrera, “Fintech Firm Stripe Valued at $91.5 Billion in Latest Tender Offer,” Reuters, February 27, 2025.

14. Emily Mason and Emily Chang, “Stripe’s Collison Says No Rush for Payment Firm to Go Public,” Bloomberg, January 20, 2026.

15. T. Rowe Price, “Helpful Actions You Can Take If Your Portfolio Is Too Concentrated in One Equity,” June 24, 2025. Defines “concentrated” as ~5–10%+ and discusses associated risk.

16. Thomas Piketty, Capital in the Twenty-First Century (Harvard University Press, 2014), Kindle page 1.

17. Walter Scheidel, The Great Leveler, Kindle page 9.