This seems like more of the kind I was advocating against, though it certainly is more common. I suppose there is a distinction between worker co-ops and just profit-sharing, which is what OP actually asked about. My mistake for sort-of answering the wrong question. But back to my point:
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).
If shareholders don't get a cut then where does the capital come from? If the worker co-op needs to buy some expensive equipment then someone has to pay for it. Outside investors will not put in significant capital unless they also have a level of control, and a reasonable expectation of turning a profit. Banks generally aren't willing to lend to such organizations unless they're structured as partnerships and the owning workers agree to personally co-sign on the loan.
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.
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.
Ah I suppose I misunderstood. A rainy-day fund is always a good idea to have. I thought you meant a fund that is constantly increasing or being spent to grow the company arbitrarily.
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.
I would argue 25% in perpetuity is not fair. Invested sum * interest based on risk, should be paid out to initial investors and then they should become "ordinary" employees of the company.
What you described is a discount version of ordinary capitalist company.
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Just an example, how profit sharing might be divided up in a private company based on my personal observation.
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
This seems like more of the kind I was advocating against, though it certainly is more common. I suppose there is a distinction between worker co-ops and just profit-sharing, which is what OP actually asked about. My mistake for sort-of answering the wrong question. But back to my point:
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).
If shareholders don't get a cut then where does the capital come from? If the worker co-op needs to buy some expensive equipment then someone has to pay for it. Outside investors will not put in significant capital unless they also have a level of control, and a reasonable expectation of turning a profit. Banks generally aren't willing to lend to such organizations unless they're structured as partnerships and the owning workers agree to personally co-sign on the loan.
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.
I understand your concerns.
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.
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.
Ah I suppose I misunderstood. A rainy-day fund is always a good idea to have. I thought you meant a fund that is constantly increasing or being spent to grow the company arbitrarily.
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.
I would argue 25% in perpetuity is not fair. Invested sum * interest based on risk, should be paid out to initial investors and then they should become "ordinary" employees of the company.
What you described is a discount version of ordinary capitalist company.