A distraction from the election: The case for employee-owned companies
https://www.pbs.org/newshour/economy/column-the-case-for-employee-owned-companies
“Ellerman has for years made an argument as startling as it is hard to refute: “the labor theory of property.” It’s that employees should own the firms they work for because of very simple logic: If they’re responsible for the consequences of their actions while on the job — committing a crime, say — how can it be that they’re not responsible for the positive things they do?”
Personal anecdote. I run a small business with a business partner (co-owner) and we have no employees. We need an employee. I’m personally a huge fan of employee-owned companies.
But from a hiring perspective, it is mind bogglingly risky for us to hire someone and just automatically stake them. Like, what if it’s the wrong person? How do we claw back control? Do we risk dilution sending the company in another direction?
It’s just so much easier just to pay someone and not have to deal with the complexity. And therein lies the rub.
Vesting periods, increasing stake over time, and conditions that shares are sold back to the company upon exit. You’d need to figure out how the valuation is done.
Basically turns out into a bonus with deferred payment and a chance for growth of the bonus if they work hard to support company growth.
The legal and administrative overhead to do all of that would incur significant additional costs. We shall see.
If they don’t already exist, it sounds like a niche need for a third-party company that has some preset templates of different options? Add a lawyer and some legal aid and could be very helpful for the system.
Originally started typing something to a completely different post. Whoops.
But yes, that becomes the challenge when deciding to stake employees versus a simple profit share.
Staking employees gives them longer term incentives, whereas profit sharing will be fundamentally a sales commission.
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I worked at a place that rolled out employee ownership after they were like 250 people. If you can’t offer ownership right away, you can offer a decent profit share (requires some amount of financial transparency to help communicate the value to the employee).
But the founders are the ones risking their capital to start the business. This sounds like socialize the gain, privatize the losses.
As it is now, employees carry a hell of a lot more risk than founders of a business and get none of the gain from its success.
Sure, the founders risk their capital investment if the business fails completely, but the vast majority of them will still have plenty of resources left to live off of and/or able to get loans or debt forgiveness to cover at least some of the loss.
Workers, though? They’re constantly one bad quarter from the risk of losing their only means of income and most aren’t even making ends meet as it is and have no savings.
When the company’s doing well, workers don’t benefit from it and STILL risk being laid off because some MBAsshole wants to show everybody how “lean” (read: barebones) the company can be.
With worker ownership, the risks and rewards are for everyone and everyone is motivated to make the company successful.
The founders can hold more or all non-voting preferred stock in the worker coop to represent their larger stake and investment. They can also use a separate corporation, which only the founders own, with no employees to hold their capital and then lease it the worker coop
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I don’t think that works unless it is dissolved and the shares distributed when the initial investment is recouped (with reasonable interest). And that value would have to be reasonable and fixed at the outset.
Otherwise, the capital class seems to have the same motivation to grow that value at all costs in perpetuity the same way they do today. Taken to a cynical conclusion, your suggestion reminds me of the situation with red lobster (and local hospitals, etc) where VC buys the company, sells the assets (to themselves at grossly undervalued rates presumably to payoff debts owed by the company), and leases them back.
If the labor class doesn’t have the ownership stake in the capital investment (including any IP), it seems to violate the very basic principles presented.
Staking should without a doubt be slowly vested not immediate at the start of hiring. The vesting period can be adjusted to the current owners risk level. As someone else mentioned below, the employee can be offered profit sharing until they are fully vested and own voting stake in the company.
It would definitely be easier in an economy where this was the only way of doing things.
I am not a lawyer.
Based on the underlying economic theory and ethical arguments for worker coops/employee-owned companies, what you could do in such a situation is make a separate legal entity for the worker coop, and then lease the assets of the current legal entity to the worker coop. You and your partner maintain exclusive ownership of the original legal entity
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