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.
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).
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.
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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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
@politics