So how does the profit sharing work, numbers-wise? Proportional to salary?
And who decides each year/quarter what portion of the profits go to employers, and how much stays in the kitty to keep the business strong?
And who decides each year/quarter what portion of the profits go to employers, and how much stays in the kitty to keep the business strong?
50% profit retained by company for growth
25% profit distributed to shareholders
25% profit distributed to employees.
The Employee distribution (distributed quarterly, paid out after 6 months, only to employees still employed at the time of payout)
- 40% Based on number of years with company
- 40% Based on last 12 months earned salary
- 20% Based on cumulative salaries earned to date since starting at the company
Instead of retaining a flat 50% for "growth", it should be decided each quarter consensually. Infinite growth is not a good thing, it's the global problem. Needs should be met and the expected/needed growth should be funded if profits are good enough for growth, but there shouldn't be this looming expectation of always expanding. It doesn't have to be an infection.
For sure the 25% to shareholders is off the table anywhere I'm going to work. That's the one thing that makes or breaks the whole worker-owned thing. Unless you consider the workers with their 1 share each to be "the shareholders", in which case I think it could be a good idea to set aside a flat 25% to distribute evenly before all those other calculations take place.
It must be noted that worker-ownership does make one form of investment impossible: selling shares of the company. With that being a major form of investment in the modern world it might sound crazy, but it's what's right, and there are other ways for investors to make their cut; they just won't be able to milk the company for every drop or have decision-making power anymore (unless they get a job at said company and exercise their 1 share of voting power).
> Instead of retaining a flat 50% for "growth"
50% retained earnings are not just for growth but also managing through economic cycles and smoothing the operational expenses and compensate for occasional losses. There need to be some sort of reserve funds when things are not going as well as expected.
In your model, what will happen if in a quarter there was a loss, are you going to ask employees to contribute cash to make up for loss? Both profit and loss sharing and quarter to quarter swings might not work in the long term at organization level; cutting cost one quarter, adding cost next quarter; employees will leave as soon as they smell losses and need for cash outlay from their own personal pockets.
> For sure the 25% to shareholders is off the table anywhere I'm going to work. That's the one thing that makes or breaks the whole worker-owned thing.
My example is from private company perspective, where shareholders are just family members who started the company and work within the company. Somebody started a company, put his own capital and took the risk of failure. He needs to be compensated. In my example, both capital and labor are rewarded equally, unlike current capitalism where all the loots go to capital providers and labor is left fighting for nibbles.
What you described is a discount version of ordinary capitalist company.
You're right that if there's a spell of no work for my firm, we have to dip into our own pockets, because we don't keep a rainy-day fund or any "company money", but that's just because there's so few of us and we were already freelancers before getting together. Even when it first started as a "capitalist venture" there was no company money, just work and get paid. This is a good idea that I'm going to be running by the other guys.
I've never seen anyone leave the group due to a dry spell, and that's because if there's no work then there's no work. Being in the group only increases the number of jobs each worker has access to, because each of us are like advertising agents for the rest. If we're on our own, there's only one person spreading the word. We could go work for one of the capitalist firms in town, but they have a similar amount of work to do, and it comes with all the downsides of not being in a co-op.
I urge you to not use my hillbilly construction crew as an idea of what a large professional firm would look like under worker-ownership. We're just some dudes who like to hit things with hammers.
Worker co-ops can be fine for businesses that take essentially no capital, like small consulting firms. But if you want to build real stuff or scale up beyond the level of a hobby/lifestyle business then you must address the capitalization issue.
In my business we split it "evenly" with weight given to how many hours each person worked on each project. You could think of it like a variable hourly wage based on the profit of the business as a whole. But that's just one model that works for us as a small firm, there are other ways to structure it. Again, I recommend reading about Mondragon's policies for another example, though I can't say I agree with everything they do, but that's up to them not me.
> And who decides each year/quarter what portion of the profits go to employers ...
I'm assuming "employers" was meant to be "workers", as there is no longer a separation between employee and employer. Everyone is equal.
Ideally this would be decided by all the employees through consensus-based meetings, with some discussion about what is necessary and what is not. That's not to say there can't be financial experts involved giving more knowledgeable opinions, but the decision must be everyone's.
People are more incentivized to let some profits stay in the company if the company is theirs. It's not much different from how the capitalist feels about "the company's money". The co-op company growing stronger is directly beneficial to each and every individual worker. If I personally work extra hard, I directly gain more money in my paycheck. That does not happen with a capitalist company, where working harder benefits one or a few shareholders who have nothing to do with the work being done.
I like the model a lot, and wish I'd done domething like that with my own business. Alas I fear it would be exceptionally difficult to -change- to that model now, because the record interests at every level that would make it hard to do.
A company with that model attracts folk who want that model, who understand (or can be taught) how concensus works, how the outcomes are not always "fair" and so on.
But it won't be easy at every company. Ours was easy because our business model is "go to place, do physical skilled work, collect money, pay for costs, distribute money, go home", on a timescale of 1-day to 1-week. Profit calculations, for example, could get more complicated with a business that runs on quarters or years and has money moving all over the place. But it does already happen and it does work, it's just not what people are used to.
If done in the same simple model we use, it's simple to implement. For profits, just take whatever the owner would have gotten before and divide it evenly, accounting for number of hours worked. For decisions, get the opinion of everyone involved in that particular thing, bonus points if you include people who aren't involved in the work but will be affected by it.
In my opinion this type of arrangement is attractive to everyone except "career-oriented" or power-hungry types, for obvious reasons. Everyone else seems to enjoy being treated as an equal and making more money.
It's good to hear you've considered doing it that way. I'd suggest at least rolling the idea around in your business, including with your employees. It might not be as difficult as it seems. Shareholding investors will certainly need to be taken into account, and that's a complex topic of it's own. I'm sure they won't be too excited at the idea of losing their shares if that's even possible; I don't know, I'm not a finance expert, I just swing a hammer for a living :)
I'd like to leave this Legal Guide to Cooperative Conversions[1] and this Consensus Handbook[2] as possible starting points if you remain interested in converting your business.
- [1]: https://institute.coop/sites/default/files/resources/SELC%20...