All Workers Deserve to Share Profits
How do we pay people fairly, in a way that will create a more equitable world? I believe the key to the answer is not “how much” but rather “in what form”. To create equitable wages we have to start by realizing the age old truth that “profits are better than wages”. To deprive anyone of profits, is to deprive them of the opportunity to realize larger gains in the long-term based on their immediate efforts in the short-term.
Principle #1: Profits are better than wages, a substantial percentage of shares must be issued to workers so that the organization’s success benefits the people whose labor creates that success.
Fair Wages are Living Wages
Of course profits are not always realized in the short-term, if at all. So in the short-term wages must be paid and these wages must be reasonable, liveable in the area where the worker lives. The goal of our tiered compensation plan is to set a company minimum wage that is based on the legal minimum wage.
For our purposes, we are setting this amount at minimum wage plus 50% which in BC results in our first tier wage of $15.38. Note that the minimum rate per hour for a single person to live at the national poverty line is $13/hour and that in many areas of BC the cost of living is high to the point that we might consider $14/hour as the bare minimum living wage.
Principle #2: Minimum wage must be a living wage. The minimum wage paid in the organization must be a living wage meaning it secures the workers ability to buy the essentials of life including food, shelter. The amount selected can be the same as the legal minimum wage, but only if the minimum wage meets the criteria of a living wage which it often will not.
Maximum Pay Differential
Experts in economics often question whether we can achieve “fairness” because to them the concept of fairness is not measurable in a way that would lead to pragmatic policy. To them we say, fairness is a metric we can measure. And it starts with earnings. The current model of unlimited earnings creates dramatic inequality in our economy. We have people working to earn 20K/year while others are paid millions. While we respect the concept that some workers have more skills, more experience, can deliver greater value, we also take the long-term view that all workers effort is fundamentally beneficial and deserving of fair reward. Equitable reward to us means that the maximum amount paid to any worker cannot exceed a ratio comparative to the lowest paid worker.
We recommend setting this amount at between 200-500%. For example if the tier 1 payment is $15.38 under the 500% maximum pay tier the maximum rate of pay would be $76.90. Under the more constrained amount of 200% the maximum pay tier would be limited to $30.76. This broad range takes into account the needs of different organizations including larger organizations that might have traditionally paid it’s top executives as much as 200-times it’s lowest paid workers.
For our example here we are going to use 350% as the maximum pay tier differential.
Principle #3: Maximum pay is set as a differential from the minimum pay tier using a maximal differential ratio. The differential ratio should be set within the range of 200-500% under the premise that no effort is worthy of excessive remuneration and that paying a few excessively devalues the payment to the others and creates inequity.
Payment Tiers & Raises
Tier volume selection is the next step in the process of creating the compensation program. We must select the number of tiers that will be available for workers throughout the entire organization. As every worker will be paid the exact amount available at the given tier, it is important there be a sufficient number of payment tiers to provide incentive and variety. An example tier structure with 10 tiers is provided below.
- Tier 1: $15.38 (Minimum wage in BC $10.25 plus 50%)
- Tier 2: $19.65
- Tier 3: $23.92
- Tier 4: $28.20
- Tier 5-9: Each tier is a raise of $4.27/hour
- Tier 10: $53.83
Having raises averaging $4.27/hour would normally be considered unusually high in most existing compensation models. For this reason our compensation program will enable tier division into sub-tiers where the next applicable pay grade can be partially awarded. Using the tier structure above as a guide we can for instance divide Tier 3 into 4 smaller pay classes as follows:
- Tier 3.A – $23.92 (the set rate for Tier 3)
- Tier 3.B – $25.34 (awards a $1.42 increase)
- Tier 3.C – $26.77
Principle #4: Payment tiers provide equal raises from the minimal pay tier through to the maximal pay tier. Keep the number of tiers manageable and use sub-tiers to create smaller raise increases.
Division of Shares
In our concept of equitable compensation workers will collectively receive at least 25% of total shares issues in the company. The total range of worker shares can be extended up to a significant majority such as 80% of the total share ownership. The main consideration in varying the ratio of worker shares is the percentage of shares retained by the company founders, and the potential need for shares that can be issued to capital investors.
Our approach to worker share percentage is currently to issue 50% of the total shares to workers.
Principle #5: Company shares are issued to workersat a minimum of 30%.
Calculating Worker Share Distribution
Workers share distribution is tied to the workers pay tier with each pay tier providing shares as payment commensurate with the wage. Shares are issued monthly based on the number of hours worked.
The minimum share payment is 1 single share per hour. The increase of shares payable per hour matches the scaling of pay up to the top tier of the pay scale. In our example model the top tier of pay is 3.5-times the lowest tier, therefore a worker at this level will earn 3.5 shares per hour.
For a new company founded within this framework the standard approach will be to issue 1 million shares initially. In our model 50% or 500,000 shares will be allocated as worker shares. However at the start of the business there is no recorded hours of work under the worker share program therefore the block of worker shares is reserved. As workers are hired and work is performed, the initial 500K shares will be issues according to the pay scales. When the 500K shares have all been issued, depleting the initial reserve of worker shares, a new block of shares will be issued in order to refill the worker share block.
The percentage of worker shares will be maintained during the issuing of new stock whether the stock is issued to refill the reserve of worker shares or due to an investment or other share distribution event. At all times regardless of the number of shares in existence the percentage owned by workers will remain unchanged unless a change to the fundamental structure is approved through a democratic process that includes all shareholders including the workers.