Employee Owned Businesses As A Solution To Income Inequality

 Income inequality is becoming a major problem in our society. The difference in income between those who make the most and those who make the least is hard to believe.

The differences are so great that they cannot be due to a difference in work ethic or productivity. It is simply not possible to be thousands of times more productive than the average person. I could see being ten times or even 50 times more productive, but there must be a limit to what it is reasonable to believe someone has rightly earned through their own hard work.

It seems that often, people who are making huge amounts of money are in leadership positions of large companies or are owners of successful businesses. They aren't necessarily the people who are doing the work that customers pay for, but they are almost always the people who make the decisions about how revenues and profits are distributed.

In what has become the typical form of a company, there is an owner or a group of owners that receive all of the revenue of the business, and they decide what will be done with it. 

The employees who work in the business and do every vital task that actually creates value in the business usually get a wage or a salary and no more. While they might be the recipients of occasional pay raises or one-time bonuses, their incomes are not normally influenced by how profitable the company has been. They don't suddenly earn more when their work has produced more value or revenue.

The owners, however, will see their incomes grow as the company's revenue grows. After paying for the costs of the business (and labor costs through wages and salaries are viewed as a cost of business), the owners retain everything else. If everyone in the company works especially hard and improves the sales of the company, the only people who will benefit from the improvements are the owners.

That might not seem all that crazy when pictured on a small scale. If you use the example of a small business in a small town, it can seem somewhat fair. The owner of the business might make 5 times what their employees make. It is a lot more than the workers are getting, but it is not jaw-droppingly ridiculous.

It gets crazy when you think about bigger businesses. Many businesses have lots of locations and lots of employees. They bring in millions of dollars in yearly revenue or more. For these businesses, the average worker might make somewhere between $15,000 and $50,000 annually (depending on the sort of business being operated), while the owners make millions each. That's 20x minimum. That is too big a difference to be justified.

I think that the best solution to this sort of income inequality would be to more fairly divide the income of the business. Everyone should get their wages, but if the company does well, everyone in the company should see the benefits from that. Instead of a few people at the top of the hierarchy getting everything, I think it should be divided amongst all of the workers.

Companies could achieve this through bonuses.

I have seen companies which tout their profit sharing programs. Often times the percent of profits that they share with their workers is shamefully small. Single digit percentages of the profits get divided amongst all of the workers, and 90%+ go to the owners. I feel like that would be something to be ashamed of and hide, not something to brag about.

Some of the better profit sharing programs I have seen are still not that good. I've seen one company that offers 40% profit sharing. That is a lot, but it is still the minority of the profits. The majority of the people in the company are employees that are doing the work that creates the revenue in the first place, but they all must share in just a minority of the profits earned. In that case, a handful of owners get to divide 60% of the profits. I still think that is just not enough.

Lots of people seem to be angry at people who use government assistance programs because they are in poverty. They think of welfare program recipients as being lazy or unproductive, but the majority of adult welfare recipients work full-time jobs. For most people on welfare, and most people in poverty, the problem is not a lack of work ethic, but companies by and large not paying people fairly for their efforts.

If people go to work for 40 hours each week and do productive work for a company that is hugely profitable, then there is no reason why that worker and all of their coworkers should be paid so little that they are living in poverty. And they should see improvements in their personal incomes when the company does well. It is fair, firstly, but it also serves as a great motivator.

Companies send out information to employees about sales growth goals and how they want to see revenues increase. They talk to employees about doing all the right sorts of things to make that happen. They ask employees to continually increase the amount of work they do so that the company can do better.

But why would employees care or do even more when they know very well that the growth of the company won't benefit them at all. When they bust their tail to get more done, they are only putting more money in the pockets of the owners. They themselves won't see any of that growth reflected in their take home pay.

If there were some kind of guaranteed and predictable way for all employees to share in the success and growth of the company, then they might actually be motivated to work towards those goals. Life is all about incentives, and the current prevailing business model provides no incentive to employees to care about the overall health and growth of the company.

People talk about believing in democracy. They say they believe in the equality of all people. They claim to want a general fairness. In government, while that might not all be legitimately achieved, there is at least the attempt to embody those things. 

In private, capitalistic business, the reality is that you get none of those things. Those businesses are not democracies, but dictatorships. The owners are totally in charge. No workers get a voice in any decisions. Workers do not share in the value created by the company.

The values of that type of company differ so greatly from ideals of democracy that they should make people think twice about how they can happily accept both at the same time.

I think if either democracy or dictatorship is superior to the other, then we should use that model in any place we can. We should spread it to all realms. If people enjoy the current structuring of business, then we should propose to use the dictatorship model in our government. If they find that suggestion distasteful, then we have found that they do not actually prefer dictatorship. We should then propose to use a more democratic model in business.

While there might be some balking at that idea initially, I don't see how it could be sustained. Businesses with democratic ideals at their core can operate just as profitably as any other business, but the success of the business can benefit more people. Lots of people can do financially well, instead of having just one or a couple people doing unreasonably well and the rest of the involved people doing very poorly.

While there might be many ways of infusing business with more democratic values, one way I have read about is the cooperative model. Another is an Employee Stock Ownership Plan (ESOP).

These might be technically two different things, but there are at least huge overlaps in what they are.

The reason that the owners of the business get do decide what happens with the profits of the business is because they are the only owners and all of the employees own no part of the business at all. Only owners get a say in the decisions. To give everyone a say in the decisions would require that every employee be an owner.

And that is exactly what a cooperative model does. It makes every employee an owner with a voting right and the right to share in the profits of the business.

When someone owns something, they tend to care about it more. And when the overall company's outcome will affect the worker-owners, they will actually have an incentive to work towards improvements.

I love this business model!

I don't see how it isn't obvious to everyone that, of course every employee should benefit when their company does well.

Many businesses make plenty of profits, enough to support the financial needs and wellbeing of all of its workers, but usually the owners take it all for themselves and pay their workers as little as they can get away with. That sort of exploitation of labor is not only immoral, but causes an inherent distrust and conflict between those who do all the work and get next to none of the rewards and those who do almost no work and collect all of the rewards. By splitting up whatever the company makes amongst all of the workers, there is no reason for conflict. Cooperation would be natural.

If all employees got to share in the profits of the company they work for, then people would take home significantly more money than they do now. Rather than working all the time to just barely get by (or for far too many people, not actually making enough money to get by), they could earn enough to live well and save for retirement. And rather than needing to work 45 years to have saved enough to retire, they might be able to work really hard for 10 or 20 years and have saved enough to retire.

If workers made a fair share of the profits of their companies, it wouldn't need to take almost the entirety of one's life to save enough money to retire on. And if most people worked for cooperatives, then most people would be able to work a decade or two out of their life to earn money and then spend the remainder of their life living in leisure and doing whatever they wanted.

That seems like a very good outcome. Who would dispute that outcome? The only people I could think of that would want an outcome different from that would be the people who are currently privileged to be business owners. For them, they currently get an unreal amount of money for doing almost nothing. They have built a money making machine that leverages the labor of other people. They get to live in decadent luxury and live as if they were retired from almost year one.

If things were to change and workers were to get a more equitable share of the benefits of their hard work, the only people who would see a poorer outcome would be the current owners. It might be that they would have to work harder to make less money. But not only would that bring things back into a reasonable alignment with the rest of the world, but it would only be a tiny fraction of all people finding a worse outcome. The vast majority of people would find much improved outcomes.

Why would anyone stop progress for most people simply because a few people will see a slight decrease to their extravagant standard of living. It was unfair in the first place for those people to hoard the value other people created.

Imagine how much better everyone's lives would be if they could work just 10 or 20 years (less if they were highly skilled workers who commanded a higher base salary) and have earned retirement. Everyone would be ecstatically happy! What a fantastic dream of a life. And it would be almost guaranteed. It would be the norm. It wouldn't be some fantasy that doesn't come true for large swaths of the population, as retirement is today.

I think that the huge increase we have seen in mental health disorders in our world in recent decades is due to the despair and hopelessness that comes from knowing you can work your whole adult life and never earn enough to retire on. You can work every week you are alive and still live in poverty the whole time. How would that sort of life not cause depression and anxiety? I think that depression and anxiety would fall to near zero if cooperative style businesses became the norm and most people could retire in 20 years maximum.

There would also be a huge reduction in the number of people using poverty reduction programs such as welfare and food stamps. If the effort these people already gave to earning an income actually earned a fair income, then there would be no need to claim these program benefits. Nobody wants to be on welfare or food stamps. It isn't a desirable position to be in. And if they were finally able to provide for themselves because they were paid fairly, then they would get off of those programs as quickly as they could.

I think that a huge number of society's problems could be solved or greatly improved by widely adopting the cooperative or ESOP model for businesses. I think things would get much better for everyone very quickly.

While one way to accomplish that would be to require it by law through the tool of government, it could also be accomplished voluntarily. No employee would fight the cooperative model, so the people who would need to make change would be business owners. Owners need to set up business as co-ops. They need to convert their existing businesses to coops.

I see it as a patriotic and humanitarian good to start businesses that are based on the cooperative model. Wherever there is a large company that exploits workers and puts the massive profits of the business into the pockets of a few owners, there should be cooperative businesses built to compete with it. As much as possible, I believe consumers would like to support cooperatives that support their workers, but too often that alternative does not exist. Build the co-ops, give the consumers the chance to support them, and see how quickly the crooked version of business we have today crumbles.

The voluntary solution requires that people in the position of ownership do what is best for the whole of society and the majority of people. It might not be better for them personally, but they would be doing a good thing. A right thing. They would be making the moral choice. It would be some type of altruism. They would be helping their fellow humans. Owners have the chance to show who they really are inside. They can reveal themselves to be totally self concerned and very selfish or they can show that they want to do what is right for the greater good and the thriving of society.

They can either keep their businesses as they are or they can convert their businesses to the cooperative model.

I also think that this is an area where entrepreneurs who want to change the world for the better can make that change. Take any type of business which currently exists and form a cooperative version of that business to enter the market and compete. If enough people start enough coops, there would be enough good jobs that share in the profits of the firms to ensure each citizen could have one. No longer would people need to work in jobs which paid a low wage and offered no share of the profits of the company.

There is enough value and wealth being created to provide for everyone. The only reason everyone doesn't do well is because people called owners hoard the value created in their businesses. If the value created by businesses was shared with everyone that worked in the business, then everyone would be doing well financially.

I really hope that a new wave of business leaders and entrepreneurs with a selfless desire to improve the world can make the cooperative model of business commonplace. It just might save the world.

Have you ever worked in a coop or an ESOP? Do you think it sounds right and fair that the profits of a company should be shared with everyone working in the company? Can you think of a better way to solve so many financial problems all at once? Let me know in the comments.

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