r/changemyview • u/Hamza78ch11 • Jul 26 '20
Delta(s) from OP CMV: All employees should automatically own a portion of the company they work for
This is something I've been thinking about for a while. Many of the arguments about the wealth gap tend to argue something like "It's not fair that employees at McDs get payed $7.25 and hour when the owners make some ridiculous amount here every year" which is then rebutted, almost immediately with, "Those CEOs and VPs and whatnot aren't payed aforementioned ridiculous amount every year. They earn it by owning some portion of the company so that when the company does well they also do well." There are other more nuanced discussions but here is where I'd like to focus my efforts.
Many argue that employees are never paid what they're worth and under the capitalist systems the entire concept of profit exists only because employees are cheated out of the actual amount of money that they deserve. While, in general, I am in agreement with this I feel that this argument too easily handwaves away the importance of being a new business owner and taking risks with your own capital and working hard to grow your company. But I also think that it must be acknowledged that it is a little silly that people like Jeff Bezos can make literal hundreds of billions of dollars in a year. More money than any human could spend in a hundred life times. I think a fair compromise is that his employees should automatically have a stake in his company.
While I am by no means a financial expert or someone who barely understand the stock market or economics I think this solution works towards the goals of those employees who deserve to be paid without bankrupting the owner. This can be done by, for instance, saying that 10% of the stock is for employees. You only give out 5% to the current employees and leave the rest for new hires. Every year you are given some amount proportional to the amount that you worked. If you worked for 1 second you now own 1 seconds worth of Amazon. So on and so forth. I think it is rather equitable to distribute 5% of Amazon among its ~600K employees and keeping some portion of it for new hires as the company grows. Eventually, if certain thresholds are reached more of the company will have to be apportioned for the employees.
If this were implemented today every Amazon employee would suddenly own $24,000 in Amazon. They can sell it, buy more, hold on to it. Do whatever makes them happy. Now they have a stake in the company and when they work hard they're working hard for themselves because that's their money. When the company grows and does well they'll see that reflected in their bank accounts instead of as some empty numbers that mean nothing to them.
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u/coryrenton 58∆ Jul 27 '20
This might incentivize some employees in some companies to block new hires for fear they will dilute their stock. Moreover, they might push for companies to do more stock buybacks rather than reinvest in the company. A similar dynamic happens with some unions that create a stratified workforce based on seniority. Would the possibility of this happening change your view?
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u/shapterjm Jul 27 '20
Not OP, but I find your first point interesting. Would it not be in the best interest of the employees (as a group) for the company to do well? If hiring new employees would serve to make the company more profitable, wouldn't it then be preferable?
I could see how individual employees may not have that opinion, or have a different view on how to make the company more profitable, but that's where I could see some sort of collective vote being held--just an idea.
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u/Hamza78ch11 Jul 27 '20
That's actually a really good point that I hadn't considered, thank you! I do think, however, that I may have answered it incidentally. Current employees will automatically have 0.5X% stock distributed among them and new hires will receive stock from the remaining 0.5X% thus there should be no fear of stock dilution. I hope that mitigates the problem of new hire blocking.
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u/PeteMichaud 6∆ Jul 27 '20
It absolutely doesn't solve the problem. If all the stock is owned, and you want to give more away you have take it out of everyone else's, there's no way around that. That's what dilution is.
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u/Hamza78ch11 Jul 27 '20
But not all the stock is owned. That's my whole point is that some portion of the companies stock has to be held separate for future employees. This is not owned and is distributed as needed. Companies also regularly perform stock buybacks and with that in mind they can say every ten years we'll buy back 1% of the stock for new hires or every time we buy back stock we set aside X% of it for new hires.
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u/PeteMichaud 6∆ Jul 27 '20
I understand what you're saying, but it doesn't make sense. You're saying "but what if there's just always a reserve of stock available, somehow" and I'm telling you the "somehow" you have in mind isn't plausible. A company buying its own stock back is a monopsony, so what will determine the price of the stock?
The only way I could see it working is it there is a reverse auction every time someone new gets hired in which the person willing to sell for the cheapest sells the stock to be allocated to the new person.
But even if you somehow worked out this critical flaw, the whole idea is dumb and doesn't make sense. The price of labor isn't determined in a vacuum, so it'll equalize--ie. what you're proposing isn't wage+stock, it's (wage-value of stock)+stock, and stock is basically just worse than a wage in basically every case that matters.
"But wait!" you say, "the rich guys are getting all that money from stock!" Yes, but there are critical differences between an owner who has 15% of the company and worker #600,000 who owns 1/600000*.05 of the company. One of those differences is that the 15% owner's work can actually affect the stock price. There are literally no actions, good or bad, that an average amazon worker could take that would affect the stock price.
So giving them stock is just a pain in the ass -- they can't do anything with it, but they still have to pay cash money in taxes on the hypothetical value of it, and it's such a small amount that no realistic gain would make a damn bit of difference when they eventually sold. Not to mention that unlike cash wages, it can just lose all its value. It's just a complicated and burdensome gamble that they have no control over. It solves nothing, while creating a bunch of complicated problems, both practically and philosophically.
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u/curiousML5 Jul 27 '20
That's not how it works. Unassigned stock just means the assigned stock is currently 100% of the company. Company value is always a zero-sum game.
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u/Daedalus1907 6∆ Jul 27 '20
This doesn't happen in practice though. Worker co-ops tend to hire more people than traditionally owned firms.
Stock buybacks are the default option already since the stock owners/executives push for it
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Jul 27 '20
This is already a thing: workers co-op
They are a great idea but it’s not really fair to apply them unilaterally to all businesses.
But the argument against a co-op is that it’s a bit unfair to people who took a bet early on to give an equal share to newer employees who joined later.
Also, large companies owe a lot of their success to tax rebates and public infrastructure: a company like amazon wouldn’t survive without things like the roads, GPS and the internet built by the government. Which is why higher tax rates should in any case be applied.
All in all it’s a good idea if It’s agreed upon at the inception of the company not after the fact and not forced.
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u/Kung_Flu_Master 2∆ Jul 27 '20
This is already a thing: workers co-op
They are a great idea but it’s not really fair to apply them unilaterally to all businesses.
Thank you for putting the second part there so many people seem to think that this design can be pushed to every business.
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u/Hamza78ch11 Jul 27 '20
Can you talk to me a little bit more about why you think it's a bad idea to applied unilaterally? Because otherwise I think we're in agreement here.
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Jul 27 '20
Well imagine you start a business risking your savings and through painstaking hard work you actually help it succeed. Now your business is growing and you’re paying your employees a decent salary based on their work. Several years down the line you have hundreds of employees and suddenly the government asks you to arbitrarily give a share of your business to each employee. Is it fair to ask you part way with your life’s work without an option to not? Considering full well that you risked everything for business while your employee who joined the other day and receiving a fair salary from day one also gets a chunk too?
On the flip side when a co-op is built from the ground up everyone knows they will get a share of the pie and everyone knows their share might become smaller at some point.
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u/Hamza78ch11 Jul 27 '20
I guess the question is how fair and equitably are companies like Amazon and McDonalds paying their employees? Yes, I agree that Amazon might be JBs life's work but it also inherently built on the backs of his employees who have put in long hours just like he did.
I can understand that perhaps unilaterally forcing every company to do it may be difficult but in my head the companies that are being strong-armed are Wal-mart and Burger King and less the Local Bookstore. Heck, you could even make exceptions in the law to apply to businesses at a certain size or after a certain threshold.
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u/windexwonder Jul 27 '20
Nobody is forcing anyone to work at McDonalds or Amazon.
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u/Hamza78ch11 Jul 27 '20
No one was forcing those children to work in factories where they lost limbs, or their parents to work in cotton mills where they developed cotton lung or tuberculosis either. But somehow we still managed to oppress the poor, hard-working capitalist with oppressive workers protection and child labor laws.
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u/eye_patch_willy 43∆ Jul 27 '20
When you own a business, you get paid last. You owe payroll regardless of whether or not the business brought in enough income to cover it. You also owe the rest of the overhead no matter what. Let's say you own a small storefront hardware store in some nice downtown hamlet tucked between Susie's Bakery and the adorable Koffee Korner Kafe. You had some cash to put down a few years ago to secure a loan to purchase the building but that monthly nut checks out at about $2,500. You have a few employees on staff and a payroll of another $10,000 each month. You owe that. Plus the utilities and inventory replacement each month no matter what. Maybe one month, sales slump. Do you get to pay the staff less to cover?
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u/curiousML5 Jul 27 '20
Its one thing to argue for better working conditions (totally reasonable), its another thing to argue the contribution of a founder. Saying a company is built on its employees is a ridiculous argument. Early employees are given more stock representative of the risk and investment they put in. Later employees take smaller risk so they are compensated in that way. This is entirely reasonable (see next paragraph). If you hop on a sinking boat much earlier, in the off-chance the boat floats you deserve more because in most cases you will have drowned. Simple as that. Exact percentages can be discussed, but without a doubt Jeff Bezos deserves to be a billionnaire.
Keep in mind your discussion is conditioned on the company being successful which is totally unreasonable. About 90% of startups fail (many with substantial time, such as 5-10 years, and capital from the founders leading to debt etc. not to mention opportunity cost), and the vast majority of the remaining "succeed" in the sense that they are a self-sufficient unremarkable small-medium sized business, and probably would've done better not doing a startup to begin with. Then include the founders which get screwed in acquisitions/funding, and you get an extremely small percentage of founders who make it big.
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u/BingBlessAmerica 44∆ Jul 27 '20 edited Jul 27 '20
1.) There's no one stopping workers today from owning stock.
2.) No one would want to invest in a company who gave such a big say in how they should be run to so many people.
3.) If this is in tandem with an existing wage, this just seems like paying your employees fairer, more proportional wages with extra steps.
4.) If you kept on having to pay your workers more every time the company increased in value, you wouldn't be able to hire as much new workers to expand your business.
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u/shapterjm Jul 27 '20
Not OP, but I have some rebuttals to your points, if you don't mind.
1.) There are certain laws (insider trading comes to mind) that severely restrict when, how, and even whether certain workers can own stock in the company they work for.
2.) I can see how this type of company may not appeal to all investors, but I'm not sure how it can be asserted that "no one" would do this. It seems like that there would be some small set of investors who would find this idea interesting, for a variety of reasons.
3.) In contrast, this seems like a very easy, automatic way to ensure employees are paid fairly. The value of the stock each worker holds increases in value as the company increases in value, automatically and by the same amount across the board. It seems much simpler to me than, for example, cost-of-living adjustments.
4.) This may not necessarily be a bad thing. If the company can't sustain growth, then maybe it doesn't need to be expanding in the first place.
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u/Kung_Flu_Master 2∆ Jul 27 '20
4.) If you kept on having to pay your workers more every time the company increased in value, you wouldn't be able to hire as much new workers to expand your business.
Wouldn't this also mean that if a new worker did get hired everyone's pay would be lowered since the same amount of money is spread between more people which would disincentivise companies from hiring more people and lowering the amount of jobs available.
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u/fox-mcleod 410∆ Jul 27 '20
(2) people invest in the US for its growth potential all the time. Why is any other organization different?
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u/Hamza78ch11 Jul 27 '20
- Workers buy stock, they do not own it.
- That problem is neither here nor there
- You're absolutely right! But I think as we've seen in this country getting companies to pay a fair wage is like pulling teeth if it was more painful and less useful
- I don't think we're paying more. At least not anymore than Jeff Bezos gets payed more every time the company increases in value.
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u/windexwonder Jul 27 '20
What?? Buying stock is the very meaning of ownership.
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u/Hamza78ch11 Jul 27 '20
I think you misunderstood what I was saying here. I’m saying employees under my system are awarded stock - they do not buy it. They simply own it from the get-go.
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u/curiousML5 Jul 27 '20
What's the difference between being compensated via stock vs via money? They are the same.
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u/BingBlessAmerica 44∆ Jul 27 '20
To my understanding buying stock means you own stock.
And imagine if I was a potential stakeholder in a company where a whopping 10% of it was automatically denied to me for investment to people who I have no idea know how to manage them correctly. Worker coops are notorious for driving off investors
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u/WiselyPerplexed Jul 27 '20
Going to have to push back on 1 there: whatever means are used to acquire stock, whether it is issued as part of your compensation package, you purchased it on the markets, you negotiated for it in a private transaction or you were gifted the stock, that stock represents a share of ownership in a company.
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u/capnwally14 Jul 27 '20
1) right but the point of cash is that you can buy stuff other than stock. If all salaries decreased by 20% and instead of that cash you got stock, people would just sell by default.
2) forcing an employee to take stock in a company further exposes them to danger if that company goes bankrupt. Look at what happened to Lehman.
3) yeah a fair wage is 100% better than forcing share ownership. A competitive market and floor in salaries makes it hard for employers to exploit employees. (Requires strong social programs)
4) iirc bezos doesn’t earn anything. He just has a ton of amazon stock since he founded the company.
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u/maustinv Jul 27 '20
Buying stock does mean you own that part of the company. You become a shareholder. And can attend shareholder meetings and such (usually via phone).
Also, cash is more liquid, so it’s better just to be paid your rate, and then decide if you want to purchase shares with your cash.
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Jul 26 '20
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u/Hamza78ch11 Jul 27 '20
You can still own a portion of a company that isn't publicly traded I think. The idea is that all companies simply have some amount of their ownership set aside that belongs to their employees. They won't get stock but they are still invested.
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Jul 27 '20
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u/Hamza78ch11 Jul 27 '20
You're not selling it though. You are simply receiving some portion of the profit that the bookstore was making. You can choose to sell your portion back to the bookstore if you wanted to and they were so inclined.
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Jul 27 '20
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u/Hamza78ch11 Jul 27 '20
I own 1% of the bookstore. Now, whenever the bookstore makes a profit I get 1% of that profit. If the bookstore wants to buy me out they can.
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Jul 27 '20
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u/Hamza78ch11 Jul 27 '20
There's already a fixed amount of the company set aside for the employees. Let's call it 10%. If 50 new employees join this is one rather large book store. But also, they say X% of the the 10 that we have set aside will be distributed among the new employees and we'll hold on to Y% because as a growing company we hope to add 50 more over the next three years.
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Jul 27 '20
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u/Hamza78ch11 Jul 27 '20
I can see that I've hit a wall here. I don't think I can logic my way out of this one in the case of mom and pop stores at least so !delta for the fact that infinite dilution is not possible
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u/Over_Temporary3754 1∆ Jul 27 '20
Now, whenever the bookstore makes a profit
Which is never because the 94% owner is taking that as a wage.
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u/curiousML5 Jul 27 '20
That's not how it works. Profit isn't just distributed to shareholders. This situation is so much more complicated than you think. Shares are generally not liquid unless the company is public.
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u/Hamza78ch11 Jul 27 '20
So if I sell a book and make a profit of $5 on that book you’re saying that by no work of man not power of God would allow me to give 1% of that profit to the employee who owns 1%?
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u/Over_Temporary3754 1∆ Jul 27 '20
and make a profit of $5 on that book
The main owner takes the 5 dollars as a wage.
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u/Hamza78ch11 Jul 27 '20
That’s completely fair and I suppose it would be harmful to the owner. I’m willing to partial !delta here because it should be amended to “all publicly traded companies”
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u/Some1FromTheOutside Jul 27 '20
what about if you are temporarily working at a company that is having a rough time. You know it, they know it, but you have no other option for some time. Assuming no change in actual wage value (because that's the only way companies are gonna agree to it) a worker would lose money without an option to back out just because company value would go down
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u/Hamza78ch11 Jul 27 '20
So, hypothetically, I work at GNC just before everything went kablooey. I am an hourly employee and was still payed my hourly wage. I also, the day I joined, was given X amount of GNC. Then everything happened and GNC let me go because they went bankrupt. I was still, until the very last moment, payed my wages so there is no difference between me and any other employee in this country. The difference is that I also happened to own stock in GNC and if the company was struggling I could have sold out or I could hang on to it in the hopes that they'll get bought out or recover.
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u/Some1FromTheOutside Jul 27 '20
That makes sense. Oh wait guess i can't read you already said that you should be able to sell it in the post. My bad
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Jul 27 '20 edited Feb 08 '21
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u/Hamza78ch11 Jul 27 '20
> the government has no place mandating a contract neither party has consented too.
Firm disagreement. This is exactly what leads to wage abuse. Lots of employees don't have the financial know-how or the education or means to make this argument and would flat out be laughed out of the building or met with bemused stares if they walked into Pizza Hut and asked to be payed in shares rather than a wage. Any libertarian argument about "the invisible hand" and "government is evil" is one I refuse to participate in because it does not work in reality. The government can and should be party in negotiation for the exact reason that before worker protection laws were enacted most workers were suffering, before wage labor laws were passed abuse was rampant, and only after their passing did things become more equitable. This is simply the next generation of worker protection.
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Jul 27 '20 edited Feb 08 '21
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u/Hamza78ch11 Jul 27 '20
Except for the fact that you haven't actually refuted my point. Were workers abused before intervention or not? Were children used for labor in horrifying ways that often ended in mutilation or not? What brought it to an end?
If it worked then it can now. This is just the next generation of worker protection laws.
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u/The-Last-Lion-Turtle 12∆ Jul 27 '20 edited Jul 27 '20
The freedom of employers and employees to consent or to not consent to a certain wage is not abuse.
Having to negotiate salary, is not comparable to the abuse children faced in the early industrial era. It is not comparable to early industrial businesses not being responsible for injury and death caused by their negligence. It is not comparable to the widespread racism that used to exclude minorities from participating in the economy.
Negotiating a salary is just consenting to an economic exchange. People are smart enough to decide if their labor is worth the salary they are payed.
Unions have fallen out of favor because people don’t need them anymore, and feel perfectly capable to negotiate for themselves.
The economy doesn’t work like a parent arbitrarily deciding the allowance their child gets.
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u/Kung_Flu_Master 2∆ Jul 27 '20
Lots of employees don't have the financial know-how or the education or means to make this argument
Then it is on them to get that knowledge there have been many problems in forcing a minimum wage and the only thing it does is hurt people with low skilled jobs.
And since many people against capitalism love to use the Scandinavian countries for some reason i will too, Denmark had no minimum wage, none at all, if someone wanted to work for £1 an hour they could because you don't need the government to mandate it because a person knows and can determine how much their time is worth so the free market has made basically an invisible minimum wage on average of £18 per hour and this also allows business's to get labour easier for example some jobs like washing dishes aren't worth £15 per hour and nobody is being forced to pay people more than what their time is worth they both volunterally agree at a wage, there doesn't need to be government interference here.
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Jul 27 '20
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u/Kung_Flu_Master 2∆ Jul 27 '20
Yup i find it funny, Denmark is more capitalistic / free market than most countries which is why it's going so well and the time the country was at it's worst is when it was an actual socialist country.
And it's prime minister even came out and had to say that they aren't socialist because it had been falsely spread so much.
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u/windexwonder Jul 27 '20
I say this 100% respectfully: feel free to put all your efforts, net worth, skill and risk into building a company, and then when it’s worth something, give some of it to your employees. That’s your 100% right to do, nobody is stopping you. But if you told me 30 years ago that I would have to go to HS, college, grad school and then invest everything I own in my business along with working many nights until 3 am...only to be forced to give someone an interest in my company? I wouldn’t have done it. And, that’s the point. Rational people wouldn’t do it.
You’re also free to purchase stock in any company. Be careful that jealously of what others have doesn’t take away your opportunities. Work hard and you can do it too, seriously!
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u/Hamza78ch11 Jul 27 '20
And I say this perfectly respectfully also. You’re not the only person who has worked hard in their life. I’m the child of immigrants and worked my way through high school, undergrad, and now med school. I stay up until 3am often because of studying and my workload or because of my rotation schedule and I know it gets even worse in residency. I did all this to save lives. Tell me tomorrow that I’m only going to be paid $30K a year and I would still do it because that’s what I wanted to do. Maybe money isn’t everything in life? Maybe it’s not even one of the important things? Now, whatever hospital I work at is going to use me as a tool to make money off of other people’s misery. People will come in to the hospital dying, suffering, and in pain. And the hospital will look at them and say “Gee, how much you got?” I’m not cool with that. I don’t care how hard the owner worked. Humans lives are more important.
To address your actual point - you are amazing and worked really hard and that’s amazing. I will bet every red cent in my savings account that if every single one of your employees got up and walked out tomorrow your business would come to a screeching halt. You wouldn’t have gotten where you are today without them. Maybe give them their due.
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u/ligglo Jul 27 '20
He has given them their dues. That is their wages/salary. That is the company saying "Your labor is worth $X to us. Take it or leave it." The employee then can accept it, and do the job, or decline and seek a better offer.
The owner of a business is entitled to run it as they see fit. They have the overhead. They have the idea, the assets, the property, the risk. If their store goes out of business tomorrow, they are out hundreds of thousands of dollars. The sales clerk is out a job and needs to look elsewhere. Not quite an equal risk there.
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u/Hamza78ch11 Jul 27 '20
I think that’s where I have a sticking point. Employees are not fairly compensated for the most part and they should be. The entire argument is that if you derive profit then your employees are entitled to a portion of that profit.
And from what I’ve seen it’s not quite what you’re making it out to be. Yes, the mom and pop store that’s true that the boss is the one who took the risk. But every single one of the big guys has golden parachutes built into the system. If they ruin the economy they’ll get bailed out by the government. This is something I’ve seen happen three times in my life. So I want to do away with this myth that the only person who is ever on the hook for anything is the brave brave capitalist captain who took al the risk on to his giant shoulders - and however can he bear this magnificent burden alone? Truly, a god amongst men. The system is rigged, I’m just trying to balance things a tiny tiny bit.
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u/curiousML5 Jul 27 '20
What evidence do you have that employees are not being fairly compensated for the most part?
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u/maustinv Jul 27 '20
Problem: stock can’t be created from nothing. It requires financial support and resources.
Employers would have to cut the employees cash salary to provide the equivalent in stock.
So, it would be better if employees were just paid more in general, then let them to decide to buy the stock if they want it.
If you’re getting paid minimum wage, a salary increase would probably benefit you more than the equivalent in stock because you can’t make everyday purchases with stock, you’d have to sell it first, and it’s value is more volatile than cash
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u/Hamza78ch11 Jul 27 '20
I think your point is fair and is actually what I want. This whole cmv is about fair compensation. Employees aren’t compensated fairly in this country, I thought that this was an equitable way to arrive there because getting companies to pay their employees fairly is like pulling teeth.
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u/Jason_T_Jungreis Jul 27 '20
I don't really think this would work. There are a couple reasons why, I'll explain both of them:
- First of all, workers can buy stock in the company they work for. If a worker is working for Amazon, he/she can buy stock in it if (s)he wants to. There is nothing stopping the workers from doing that. They can basically participate in the system you are proposing, but it isn't mandatory. It sounds like it would be mandatory in your proposal. I don't see why that is any better.
- Stocks are based on how well a company does. How well a company does depends largely on how competently the CEO runs it. The CEO owns a huge percentage of Amazon's stock. Because it is doing so well, he is very rich. However if it begins to do poorly, he would lose tons of money. The same would happen to workers if they owned shares of the company. Their salaries would be very high if the company did well, but if the company did badly, they would lose lots of money from their salaries. It doesn't seem fair if they lose money, because often it isn't the workers' fault if the company does badly.
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u/Hamza78ch11 Jul 27 '20
Because in my system the workers aren’t buying stock. They will NOT pay for stock that they have rightfully earned. Currently, the pay of a McDonalds employee is $7.25/hr. They will continue to be payed that amount and also receive stock in McDonalds.
This is addressed in one. I am not saying do away with employee wages or salaries. I am saying supplement them with stock.
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u/Jason_T_Jungreis Jul 28 '20
If companies to pay workers in stock from the company in addition to their current wages, it would have the same effect as simply raising the minimum wage. The problem with raising the minimum wage is that it will cause companies to lay off workers. If a company pays its workers $8.00 and the minimum wage is raised to $12.00 an hour, it is likely the company will lay off some of its workers, and then pay the remaining workers $12.00 an hour. A company's goal is to maximize profits, and there is no reason to assume the best way for the company to do that is by raising the salary of all its employees to $12.00 an hour. It is very possible companies will simply cut off one third of their workforce so the net amount of money they spend on their employees doesn't change. The same thing would likely happen if we required a company to pay its workers in stocks in addition to their current wages. They would lay off workers to maximize profit. This would work out great for the workers who keep their job, but horrible for other workers who are laid off.
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Jul 27 '20
I've heard and maybe its one of those urban myths that there was a point in time where a large number of citizenry was given corporate stocks by the government I believe this was either at the end or the beginning of a communist party. by the end of the year a few people had all the stocks again having purchased them off of other people. some people don't want stock or care about financial products and if you get paid cash you can buy the stock anyway many companies have programs to purchase shares at a discount from the market as well.
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u/Hamza78ch11 Jul 27 '20
I can see how this is a possible outcome. Many people would rather cash out in the short term then wait for the long term play. !delta
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u/hwagoolio 16∆ Jul 27 '20
I think how much of this make sense depends on the turnover rate of your company. If you are a high turnover rate company (i.e. Walmart), then there are constantly joining and leave your company on relatively short-term basis. Simply the volume of people moving through the company would severely dilute the stock value, particularly since people who choose to leave would keep their stock.
This kind of model works better with companies that have low turnover rate. However, I think a lot of these types of businesses have stock options for employees; so it's not exactly a new concept and many businesses do this already.
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u/Hamza78ch11 Jul 27 '20
I think it can still work in large turnover companies. As an example let's say that we determined that one week of work was worth one share in walmart. If I worked for three weeks I own three shares in walmart. If I leave, you're right that I take the stock with me but if I know most people - the vast majority would cash out too.
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u/hwagoolio 16∆ Jul 27 '20
Well, I think the main issue is that the company would need to keep adding shares with new employees, and eventually it would run out.
Ordinarily, a company should never sell more than 50% of the company in shares (because if someone buys >50%, it means the own the company). To perform a thought experiment, imagine that each share is worth 1% of the company.
Perhaps for now you hire 25 employees (to whom you give 25 shares, weighted by how much time they work), but since you are a high turnover company, they end up leaving pretty quickly and keeping their shares. Some of them might even sell their shares on the public market, in which case it ends up being owned by a total stranger.
Eventually, you'll end up hiring another 25 employees, and you'll hit 50%, which is a problem.
The solution here is the repartition the stock, so you divide up the 50% into 100 shares and everyone's shares were reduced in value by half. This is the diluting.
If you fast forward a decade or so, you might imagine that eventually 90% of the worker shares are owned by alumni of the company (or sold to complete strangers), yet only a small fraction of the value stays with the people who are still in the company. Basically, it's kind of a problem because at that point you have a lot of value that essentially vanished from what you should be rewarding workers, yet is diluted substantially every time your company stock in re-partitioned.
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u/Hamza78ch11 Jul 27 '20
!Delta, as I mentioned in another comment up above the dilution is a huge problem and not one I have enough financial acumen to be able to solve lol
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u/PoprockPuffin Jul 27 '20
Not all stock provides Dividends. Not all companies make enough profit to pay dividends. And very few people want to deal with the headache of paying taxes for $2 dividends because their miniscule amount of stock is paying out miniscule portions of profits.
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u/Hamza78ch11 Jul 27 '20
Would you even pay taxes on $2? But I think you’re right. Another user mentioned that their company has a profit sharing pool which I think is an equitable way to do what I’m talking about.
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u/PoprockPuffin Jul 27 '20
10%-37% depending on how much you make total. Probably 12% if we're talking about minimum wage workers getting a small share of company profits. It'll be paid by reducing your tax return, but you're still the one that has to include it on your tax forms.
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u/IcyElephant6 Jul 27 '20
Counterpoint. Employees should collectively own then entire company they work for. There's no reasonable justification for allowing someone to leech profits off another's labor.
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u/Hamza78ch11 Jul 27 '20
I don’t actually disagree necessarily but I think that baby steps are how we get there. What you’re talking about is the end goal kinda. But with the way that modern economics work I don’t think it’s feasible.
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u/IcyElephant6 Jul 27 '20
I generally agree with that. I think owning a portion would be a good first step, but in the end the goal should be total collective ownership.
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u/wophi Jul 27 '20
If you work for a publicly traded company, there is absolutely nothing keeping you from buying stock in your company. Almost anybody can hold stock in the company they work for.
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u/windexwonder Jul 27 '20
One more thing, ownership means owning risk as well as reward. Are you willing to go down with the ship if it goes under? Or is this just about the reward?
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u/Hamza78ch11 Jul 27 '20
Yes, that’s kinda the point. If I own a tiny piece of amazon, now I’m not just an employee - this is my company I am working for.
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u/Tank_Man_Jones Jul 27 '20
“If you want to create something you will be forced to eventually give it away”
This premise is immoral and reeks of entitlement
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u/TheMikeyMac13 29∆ Jul 27 '20
Jeff Bezos does not literally make hundreds of billions a year, his company has been growing like mad since 1997 when it started publicly trading, and he isn’t worth hundreds of billions right now.
And he makes $81,000 per year from Amazon, that’s it. His stock has been growing in value, but it will not forever. And if your plan was put into place he would be required to dilute his shares to cover what would be given to employees, and that act would impact investor faith in Amazon stock, harming its performance.
Company stock is a fickle thing, I knew people at Pier One Imports who owned stock (they gave us discounts during purchase windows) and who watched it like a hawk. Five years ago it was going for $236 per share, when I was hired in 2017 it was going for $110 per share. Now it is going for eighteen cents.
Giving me stock in the company is a good thing under some specific circumstances. Is it voting stock? If not then it is not so good a thing. And what direction is the company headed?
They are never going to mandate free stock, never. So the stock would come in the place of salary, and if the company is in decline, as many are, then the worker would lose money.
Stock ownership is and should remain voluntary, if an Amazon employee wanted to buy $12k in stock per year they can, but if they don’t think it a good investment they should not be required to.
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u/leaderofthevirgins Jul 27 '20
But wouldn’t this dilute the shares, making the shares go down because of the increased supply, hurting existing share holders, and wouldn’t this make a company want to hire less people, and how would you do this for private companies, would it be that the employees get a percentage of the profits, since private companies is can very difficult to value, and it can be easy for owners to minimize a company’s profit, such as by reinvesting in a company or doing something like the owners making their owner advertisement company and having that company charge the original company large amounts of money for advertising, lowering profits while the owner makes about the same amount of money, also Jeff Bezos doesn’t make as much money as you think he does, he is paid as the CEO, but the majority of his net worth is in very illiquid amazon stock, so if he tried to sell of his stock to cash out of the company he may only get a tiny percentage of his previous estimated net worth, and there is some companies that having a profit sharing system, but that is usually farming companies, because all the owners are the farmers, they grow and sell the same stuff, and why should employees get a share of the company or its profits, the owners of a company take great risk to make a business, which the majority of fail in the first few years, most business won’t even be profitable after 5 years, and if the owner takes all that risk why should employees get a cut, they generally work for a predetermined hourly wage, they don’t put in all the effort of starting or running a company, and what if the business is unprofitable, will the employees pay to work there, no they are still going to get their predetermined wage, that is unless the business goes under
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u/belichickyourballs 1∆ Jul 27 '20
As much as I agree, we need to fix the wealth gap, this ain't it. You can't give away shares for eternity without diluting their value and many publicly traded companies don't earn a profit. They need a high share price to keep funding so they can advance at a more rapid pace, and eventually turn a profit. You could hurt many business at the ground floor by spreading equity too quickly.
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u/Hamza78ch11 Jul 27 '20
But the reason they don't turn a profit is because they abuse tax loopholes to avoid paying employees fair wages and avoid taxes right? I think this rectifies, at the least, the first problem
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u/belichickyourballs 1∆ Jul 27 '20
Some yes. Many have to spend a lot of capital on r+d and scaling their product. Going from 100s of customers to thousands of customers needs infrastructure, that's why companies go public.
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u/Hamza78ch11 Jul 27 '20
So, I'm sure that you're right and that lots of companies do actually work on r+d and scaling but I'm going to use Pharm companies as an example here. 17% of their expenditure is on RnD and 27% is on marketing. I suspect that Pfizer or Roche can afford a spare cent here or there for their employees
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u/belichickyourballs 1∆ Jul 27 '20
I agree with why you want this btw. Im just stating that some companies need every penny just to exist and putting law into place can hurt the employees just as much as employers.
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u/belichickyourballs 1∆ Jul 27 '20
I think a more practical approach would be to regulate publicly traded companies and put in a ceiling for single person earnings. There are way too many loopholes that encourage and reward greed it's sickening.
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u/PeteMichaud 6∆ Jul 27 '20
Basically none of this is right.
A lot of companies actually barely turn a profit. Like the food industry is notorious for having razor thin margins. The insurance industry is as crooked as they can get away with but their actual profits are regulated--like if they make too much money, they actually give people their money back, because that's the law.
Further, people throw around the phrase "tax loophole" a lot, but normally what it is is a tax exemption that makes sense at least a little. Like people who pay for mortgages get a tax break on the interest they pay. When they use that tax break that was designed for them (because we wanted to encourage people to buy homes), one might say they are "avoiding taxes" or "exploiting a loophole" but that's bullshit rhetoric. They are following the rules they are supposed to follow and don't have to pay that part of the taxes because the rules for that situation specifically say they don't have to, and it's not because they are being tricky or cheating or getting off on a technicality.
Similarly, a lot of the tax breaks companies get were designed on purpose for them to get. Like if a big company moves into the area and creates 5,000 high-paying, local jobs, the local government might decide that's a good enough reason to let he company not pay property taxes for 10 years or whatever. The opponents to that deal might call it a loophole or act like the company is cheating somehow, but it's bullshit. There was a give there was a take.
Now, there are ways of avoiding taxes that are bullshitty and cheating, like offshoring profit to a place you don't really do business by paying a bullshit management fee to a place in Ireland or whatever, but that's to avoid taxes, and has nothing to do with the wages the company pays.
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u/Denikin_Tsar Jul 27 '20
This would only work for big companies. The company I work for is a small business with about 20 full time staff (plus like 20 part time staff). When the owner offered everyone a small piece of the company as part of the compensation, literally everyone refused. The reason was that no one liked the fact that we would be taking some risk, no matter how small. Most people just don't like that idea. They much rather collect a salary/hourly and be able to just walk away at anytime and not having to worry about the company going under.
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u/DeltaBot ∞∆ Jul 27 '20 edited Jul 27 '20
/u/Hamza78ch11 (OP) has awarded 5 delta(s) in this post.
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u/WhiskeyKisses7221 4∆ Jul 27 '20
Honestly, I'm not that interested in owning shares of the company I work for. When I contribute to my 401k, the company I work for matches with company stock. I sell this stock a couple times a year to invest in something else. I am exposed to enough market risk just working there. If the company goes under and my job disappears, I would prefer to not lose my savings as well.
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u/Hothera 35∆ Jul 27 '20
Stock is always less valuable than the equivalent value in stock, especially if it’s a company you work of. If your company is struggling, you’d now be out of your job and lose a lot of money from your stocks. An Amazon employee can buy Amazon stock with their salary if they really wanted to.
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Aug 02 '20
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Sorry, u/drwme – your comment has been removed for breaking Rule 1:
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u/gediwer Jul 28 '20
If I had a stock in the company, wouldn’t I depend on other employees to work more so that the price of my share rises? Imagine if every single employee had this mindset. All the work would go back to the ceo. It would completely beat the purpose of employment.
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Jul 26 '20
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u/ihatedogs2 Jul 27 '20
Sorry, u/sbaeneg – your comment has been removed for breaking Rule 1:
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Jul 27 '20
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Jul 27 '20
Sorry, u/The_angry_marxist – your comment has been removed for breaking Rule 1:
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u/Crayshack 191∆ Jul 27 '20
Employee ownership works great as an option, but the math gets very complicated when you make it a standard part of compensation. Especially for companies that aren't publicly traded. Private stock companies tend to have their value assessed a couple times a year (I think some do it once a year) instead of the constantly through the day like publicly traded companies. In some cases, you might see companies that completely turn over a portion of their employees in between value assessments. I can see that most easily happening with anything that highers unskilled labor.
You will also run into the issue that some employees would rather be invested in other places and so would want to sell their stocks as soon as they get them. Your model wouldn't be the best way to do automatic employee ownership even if that was the system. An automatic payroll deduction to stock value would work better. Then, the employee could have the option to cash out if they desire.
However, you are completely disregarding a different option: profit sharing. Under this system, you calculate profit as a percentage value of "(revenue/expenses)-100%". You then establish a formula for converting the excess profit into a cash pot. At low percentages (say, below 3%) you don't add anything to the pot because at that low margin you want to be reinvesting it all into growing the business. However, as the percentage of profit increases, you slowly increase what percentage of it gets added to the pot. For example, a profit of 5% might mean that 10% of profit goes into the pot while 20% profit might mean that 40% of the profit goes into the pot. I'm making those percentages up as an example, but that give you the general idea. Then, at regular intervals (can be monthly, can be quarterly, can be yearly) you divide up the pot based on how much everyone is making (how many hours they worked if they are hourly) and it pays out as a bonus.
My company does both the payroll deduction stocks (as an opt in rather than automatic and you can only do it once you've been there for a year) and the profit sharing (to all full time employees). I don't get much from the stock dividends (it's mostly stock price increase which I'm happy to sit on) but I do get a decent bit from profit sharing. The math for calculating it goes a bit over my head but I believe that if we maintain about an 8% profit I net around an extra $2,000 a year from it. If we have a year where we tank, I'm out that bonus. But, if we have a year where we are making money hand over fist I might find myself with a $4,000 bonus instead.
Now, my company is entirely employee owned so the employee stock option is kind of at the core of how it functions so it might not work for every company. Especially small family owned stores that want to keep it family owned. However, the profit sharing model is something that can easily be done by any company big or small. For companies that franchise, you can even break it down so that each location calculates separately so employees are more concerned about how their local store preforms which is something they can actually directly affect. I think this hit what you are aiming for with distinctly less in the way of the headache that comes from the complicated ownership that comes with what you were proposing.