Remaking the Union model.

[panamaican]

Can you imagine? She gets hired for full pay but the company is not yet making profits but the argument is that she should also get a share of revenue coming in even though it is less than costs (Losses) and its born by the Investors who is the cash investor and other nurses who then have to get even less pay.

Nope. No way.

I know we'er covering this in another post but you're disregarding what I said - which is that pay is less than what the market would bear because you're supplementing it with the pre-profit figure. The cost to the organization remains mostly the same. And you know as well as I do that compensation on gross receipts isn't uncommon, especially in sales based jobs.

 

[JonesBones]

My dad was a serial entrepreneur. My mom was a nurse and about as risk adverse as anyone could be. Made for an interesting dynamic at home and eventually a divorce.

I always remember when my mom was approached by one of her career nursing friends who wanted to buy a private Nursing Home. She had an investor but still needed help in making the model work. She had an idea and asked my mom to join. The biggest cost after buying the building was the variable cost of nurses wages. She wanted to bring in a bunch of partner nurses who would agree to small base pay (compared to what they were currently making) but was tied to a profit share formula that if the nursing home hit its goals, they would be making many times what my mom made in the hospital. And if they were able to replicate that model they, as owners too would all share in the profit of those.

Of course my dad wanted my mom to jump at it. Take the risk. But my mom wanted no part of it. ZERO. She had no appetite to risk her pay to contribute to the success. She told her friend that but also told her she would work there for just competitive flat pay. They did not hire her and she happily stayed with the hospital.

That group owned 8 nursing homes before my moms friend passed and the nurses who joined her were all very wealthy.

My mom never once regretted her decision. It was just not her.

It is a pervercity to step in and say my mom deserved full pay PLUS a profit share, IF the company one day became profitable when the other ladies risked their own capital by taking variable pay that was reduced and which they never would have got back had it not worked out.

It would be even more perverse to say my mom should get full pay, and a revenue share (profit share equivalent even if no profit) that the investors (cash investor and nurses taking reduced pay) would be paying to my mom.

Can you imagine? She gets hired for full pay but the company is not yet making profits but the argument is that she should also get a share of revenue coming in even though it is less than costs (Losses) and its born by the Investors who is the cash investor and other nurses who then have to get even less pay.

Nope. No way.

Your parents sound exactly like mine. My dad made a decent living with some small businesses. My mother is so fuckin risk averse with money and everything else. The later investment my father made to retire on, which my mom was against, failed. So she was right at least a couple times. But if we listened to her, we would never take chances on anything. Overprotective in general. My dad is also kind of impulsive and looking for new opportunities in general. As am I. I am neurotic and twisted because both voices are inside of me. lol. I am both risky and cautious. It is complicated.

My parents are still together and I have never seen them have a serious fight in my life.

 

[VivaRevolution]

Thoughts from the Bernie Union thread.

-----

The current Union model is broken. It is an adversarial model where the Host (Corporation) and Workers interests (Union Members) are not aligned and it becomes a battle of sharing gains only thru leverage almost always at odds with the long term viability and strength of the company.

It promotes short term interests only often at the expense and competitiveness of the Corporation which the workers should have as much incentive to see do well as the Owners and Community do.

Currently a Union is incentivized to boost membership numbers regardless of cost to the employer, and regardless to the impact on competitiveness and even if they cause such bloat that people have little or no work to do. They will still push for 'more', ever more, regardless.

Similarly many owners short term focus on profits at the expense of long term competitiveness and viability contributes just as much to the problem often causing a lose/lose situation.

It does not have to be that way. I, a sherdogger, can fix the Union model to the benefit of both the corporation and the employee. I am the chosen one.

First off lets recognize and agree that the long term viability and profitability is critical to the company staying in business which is a benefit to all its stakeholders, (shareholders, employees, community).

So here is the fix.

The Union model gets changed to a direct 'Profit and Benefits Share' model where they get X% of the corporate profits divided up amongst the membership. Company makes any profit they automatically get X% to direct as they want to allocate to expanding benefits and paying out bonuses.

So now suddenly profits = good, increasing profits = better, maximizing profits = great. Employees and Owners and Community all agree. Interests aligned.

Further more you break that down by incentivize each unit in the company to drive towards maximizing profits, by tying their specific share of that bonus to benchmark productivity goals. Every industry has them and they set what is an efficient department, average department, or under performing department compared to the peer companies. If you do not do that one department may choose to bloat and coast at the expense of the others being efficient.

You have a department that wants to bloat up with extra employees so each person can do less work, that would raise the cost side of their ledger, and reduce their per person profit share. If they try to cut man power simply to horde more money for less people, that would impact the productivity side of the ledger. Both would diminish their share of the profit share and push them to a well balanced work force, optimized to maximum output with the required number of people, but no more. Investments in technology, innovation and other best practices now become incentivized for all.

Every Union member would be happy because, lets be real, they don't care about 'more bodies', what they care about is 'maximizing their personal remuneration' and this does that.

Owners would be happy as they know they have a motivated work force always pushing to optimize the Labour V Productivity issue.

And the last stakeholder, the community would be happy as this is the best way to ensure long term viability of the corporation as an employer in the area.

The above would have been the best long term way to protect the viability of the US auto market, and prevent its collapse.



There you have it sherbro's I have given a blueprint to fix the Union V Owner problem and to create a true kumbaya moment for all and you can all now heap praise on me for this bullet proof easy solution that I know has been mirrored in certain jurisdictions but somehow tends to evade the bulk of industry.

Now try to punch a hole in the above, if you dare.

This is why I am a anarcho-syndicalist.

I want to solve the same problem, but want to do so by making the workers the owners.

Specifically I want to take publicly held corporations, where the private owner that took the initial risk, has already cashed out, and make them worker owned.

 

[Liquid Smoke]

CEO's aren't sharing in any new business risk

CEO's don't get profit sharing through government mandates either. They get it because their job is to make one number as big as possible (hint: it's the one at the bottom of the page). They're given profit sharing to incentivize their job performance. The board will tell them something like "make that number 30% larger next year and we'll give you two of them back". Guys working in the warehouse don't typically have that kind of impact.

 

[MikeMcMann]

Companies use options for a variety of reasons. The point you are not really addressing is that if you obligate companies to share revenue in a way that they would not do otherwise you end up a) misaligning pay with productivity b) get tons of gaming c) have a very unequal system regardless.

Some will work at profitable places and some won’t, the problem is many of these workers actions will have little impact on the bottom line. Sure they can have some impact, but the nature of the industry and management’s decision have a bigger impact. Why should 2 workers doing the exact same job have govt regulation make one a winner and one a loser?

Employees may want to wring out more productivity but what if the solution is to get rid of employees? Is the mail room guy going to get the same share of profit as factory steward? If we take this to the logical extent are we now saying that workers pay should be volatile with profits rather than fixed (either fixed pay goes down or we lower ROI which means other companies not forced to do this attract more capital). And if ROI is not a concern, fine, how about just forcing wages for all upwards, seems more fair.

I could also see setting up a coperperation with all the intellectual capital, sales contracts, executive team and then outsourcing operations to a company, maybe even under different ownership. Not so different than many situations today (profit sharing won’t help the Chinese worker). The profit sharing will need crazy reallocations and regulation requiring and even more detailed interference in the market.

I think we already have a very effective tool for profit sharing. It’s just very under utilized. It’s called progressive incomes taxes. Combine it with social programs, minimum incomes/ support, and you have a system that does not require unions or detail regulations. The market does it things and we distribute the proceeds.

Again, respect the suggestion, just don’t think it’s an optimal solution. BTW me and @ultramanhyata have argued this one to death and I respected his position on it as well.

oh, my model does not obligate unions. I am saying this is the model unions need to switch to if they are formed and that management should support if they are formed as it is based on a win/win/win (employees, Owners, community).

Anyway nothing is perfect and without issues, but this is far better IMO than the current Union/Management model which is adversarial and ultimately weakens the company to the detriment of all..

 

[MikeMcMann]

1) I draw a real difference between initial investors and secondary market investors when it comes to risk. Too often people equate the risk of some day trader with the risk taken on by, for example, a Series A investor when comparing the risk position with that of the employees of the company. They're not remotely close to being the same risk.

That's the entirety of the point I'm making here - people say employees don't share in the start up risk because they don't risk capital to create the company. That's 100% true. But that has nothing to do with the people in the secondary market, who also do not risk capital to create the company. They are much closer to the position of the employees than they are to the position of the initial investors.

Now, I know you have extensive background here so, from your perspective, do you equate the risk position taken on by a venture fund pre-launch with that of someone who picks up 100 shares through Robin Hood a decade after the IPO?

Do you put the CEO getting stock option compensation in the same risk position as the guy who bought a 10% stake to cover an 18 month runway?

If you do, I will defer to your experience over mine but it would surprise me.

2) about gross vs. profit - that's my entire point. You can't go straight profits because of the shareholder issue. I'm fine with multiple metrics.

1) of course the risk varies. But so too does typically the return which is tied to risk. Less risk, less return, generally. The highest risk is Start Up risk but also Turn Around Risk. Mature companies that stumbled and want a second chance or want to pivot to another direction can get late stage investors who are taking on immense risk.

But for me the main difference is even a day trader faces risk. The vast, vast majority of day traders lose money actually. Few can do it successfully.

An employee, like my mom above, wants zero risk. She wants her guaranteed pay day and if the owner has to liquidate his life savings (as many entrepreneurs do) to take that gambe, she wants her pay even if the company is suffering. The day they cannot give her,her pay she will look to leave them and go somewhere else that can.

That is the absurdity I keep speaking of. You have no appetite for risk, and want a guaranteed paycheque from my liquidated savings? Absolutely fine. That is what the vast masses of employees want. But as soon as you get that rare break thru company (1 in 10) that becomes very profitable a lot in that same group say 'I demand some profit share'. Meanwhile in the 7 of 10 that failed those same employees are not saying to the owners, 'here is some of the money back. We should share in the losses'.

A non founder CEO brought in to an already established company really only faces Opportunity Cost risk. So not the same type of risk. It is a gamble of trading his time for expected upside in one place as opposed to another. So no, not serious risk as the downside is only lost upside. Still something though.

BTW the celebrity CEO culture that spawned in the 80's (?) I think that saw CEO pay rise to rival other celebrities such as top actors is ridiculous. Walmart has that right. Not saying I would interfere with that free market choice but Boards have become irresponsible by buying into that need to compete. Now upside through Options that only obtain value vie stock growth, I have no issue with. I am talking about massive guaranteed base pay.

 

[MikeMcMann]

This is why I am a anarcho-syndicalist.

I want to solve the same problem, but want to do so by making the workers the owners.

Specifically I want to take publicly held corporations, where the private owner that took the initial risk, has already cashed out, and make them worker owned.

Most workers don't want that risk. I mean they would say 'great' if the company remains profitable and viable but what do you think would happen if the company started to lose money and needed an captial investment or it was growing and needed a capital investment to stay competitive. Those type of people would not want to do either. Happy to milk the cow but no desire to pay any of the costs.

 

[PainIsLIfe]

its a case study I would love to read about then as I cannot see how you prevent union bloat in large successful companies. the leverage swings so strongly towards the unions that they would be pretty inept not to take advantage of it, imo.

I dont want to post too much on line, but I'm United Steel Workers and from other posts Ive made it wouldnt be too hard to figure out the company with a little sleuthing.

 

[MikeMcMann]

To my prior post above I wrote a post in the Heavies Thread many years ago proposing this structure for a new MMA org as I was looking for an answer to UFC dominance and what many perceive as an equitable Revenue split. To @panamaican point above Revenue splits are prevalent in sports but again they tend to be in established sports where profit is already stable and in actually its just another name for a Profit Share (since it comes out of the owners profit) but it does not tie it to risk on the bottom line. Owners allow it because the sports aree mature and profits are assured.

Such a revenue share in the early UFC of any MMA org would certainly be dangerous if not doom them when they lose so much money up front to build a market.

Anyway my idea I wrote about for a new MMA org back when Randy and Tito and Fedor and so many others were all at odds with the UFC was a Fighter Started and Owned Org. A true cooperative. Not just for the FOunding fighters, but for every fighter that joined after. No guarantee of any set base pay but all pay was set to a few factors such as "Years of service', 'Draw power', 'Ranking and Title Run' and a few more. Each was awarded points and each got paid by the accumulated total of those points based on the revenue each event they participated in made. LIke a non profit, all money after costs, minus allocations for growth, etc, were paid out.

Maybe you have one cash investor who get X% for the initial cash flow needed, but by removing the biggest EVENT cost possible and making it variable, which is fighter pay, and tying that to the revenue of the event only, you need far less upfront capital and therefore can share far more of the total revenue earned amongst the fighters.

But again most people do not want to be entrepreneurs who take risk. They would not do this to get to the much bigger pay days one day and instead would watch the UFC investors take all the risk and then just argue once its successful that they deserved more after the fact.

 

[panamaican]

1) of course the risk varies. But so too does typically the return which is tied to risk. Less risk, less return, generally. The highest risk is Start Up risk but also Turn Around Risk. Mature companies that stumbled and want a second chance or want to pivot to another direction can get late stage investors who are taking on immense risk.

But for me the main difference is even a day trader faces risk. The vast, vast majority of day traders lose money actually. Few can do it successfully.

An employee, like my mom above, wants zero risk. She wants her guaranteed pay day and if the owner has to liquidate his life savings (as many entrepreneurs do) to take that gambe, she wants her pay even if the company is suffering. The day they cannot give her,her pay she will look to leave them and go somewhere else that can.

That is the absurdity I keep speaking of. You have no appetite for risk, and want a guaranteed paycheque from my liquidated savings? Absolutely fine. That is what the vast masses of employees want. But as soon as you get that rare break thru company (1 in 10) that becomes very profitable a lot in that same group say 'I demand some profit share'. Meanwhile in the 7 of 10 that failed those same employees are not saying to the owners, 'here is some of the money back. We should share in the losses'.

A non founder CEO brought in to an already established company really only faces Opportunity Cost risk. So not the same type of risk. It is a gamble of trading his time for expected upside in one place as opposed to another. So no, not serious risk as the downside is only lost upside. Still something though.

BTW the celebrity CEO culture that spawned in the 80's (?) I think that saw CEO pay rise to rival other celebrities such as top actors is ridiculous. Walmart has that right. Not saying I would interfere with that free market choice but Boards have become irresponsible by buying into that need to compete. Now upside through Options that only obtain value vie stock growth, I have no issue with. I am talking about massive guaranteed base pay.

1) I think you're missing my point. You're talking about employee risk. Take an employee at Apple. Offer them a job at a start up. What's your take on their risk vs. the day trader who buys stock 5 years after the start up hits the secondary market?

I think you're debating a point I never made. Most employees aren't taking the risk that the start up investor is taking. And neither are most traders, even the long term hold guys. You can talk about risk but if you're buying stock in venerated companies with years of trading in a band, you're not taking much risk either. Sure, you're talking about couple point swing here or there but that's not real risk. The moment the stock shows a little dip, they can walk away with 90% of their investment intact.

The rank and file employee is taking the same risk as the CEO - opportunity cost except without the upside potential a la the CEO.

And when I mentioned gross - we're not talking about guaranteed base pay. We're talking about a model that's closer to how restaurants work. Base pay plus a percentage based on the gross (I realize that we've already agreed on the idea that we can use various metrics). Which is what a waiter gets, particularly at restaurants where they split the tips.

Start up founders are in a unique position. I simply disagree with the idea that the risk the employee takes is non-existent or that the day trader's risk is remotely in the same boat as the start up foudner or early investors. That's my point. I'm not claiming that risk is equal.

But we've both been involved in start ups and you know as well as I do that convincing talent to leave a secure institution and commit to your new venture is a risk on their side, especially when stock is not part of their compensation.

 

[Gandhi]

oh, my model does not obligate unions. I am saying this is the model unions need to switch to if they are formed and that management should support if they are formed as it is based on a win/win/win (employees, Owners, community).

Anyway nothing is perfect and without issues, but this is far better IMO than the current Union/Management model which is adversarial and ultimately weakens the company to the detriment of all..

Oh well that makes more sense. Not as a national obligated model but the best path forward IF you are going to have a union. Any model (like the German one) that gets unions and management aligned will work better than the adversarial one imo.

 

[MikeMcMann]

I dont want to post too much on line, but I'm United Steel Workers and from other posts Ive made it wouldnt be too hard to figure out the company with a little sleuthing.

Ahh. Kind of makes sense.

Steel has been an industry under immense stress for a long, long time. That type of 'in your face, cooperate or die' pressure put on all parties does yield good results and more a return to the view that the healthiest company, industry is the best thing for all concerned.

Sadly no one seems to realize that when things are booming.

 

[VivaRevolution]

Most workers don't want that risk. I mean they would say 'great' if the company remains profitable and viable but what do you think would happen if the company started to lose money and needed an captial investment or it was growing and needed a capital investment to stay competitive. Those type of people would not want to do either. Happy to milk the cow but no desire to pay any of the costs.

I would argue they have the same interests as any shareholder at that point. They would just be voting in a board, as share holders do.

 

[Gandhi]

Revenue is not a great metric. The point is to share in the upside, imagine if every employee was incentivized to increase sales regardless of profit. That’s already a huge problem. GAAP is all we got, have to live with it. Also if these are negotiated not handed down by govt, you can move the gaap plus, ie restrict the games that can be played.

 

[PainIsLIfe]

Ahh. Kind of makes sense.

Steel has been an industry under immense stress for a long, long time. That type of 'in your face, cooperate or die' pressure put on all parties does yield good results and more a return to the view that the healthiest company, industry is the best thing for all concerned.

Sadly no one seems to realize that when things are booming.

The USW are just our union reps - flint glass workers before that. I dont work in steel or glass, but we are tied to the auto industry.

 

[MikeMcMann]

1) I think you're missing my point. You're talking about employee risk. Take an employee at Apple. Offer them a job at a start up. What's your take on their risk vs. the day trader who buys stock 5 years after the start up hits the secondary market?

I think you're debating a point I never made. Most employees aren't taking the risk that the start up investor is taking. And neither are most traders, even the long term hold guys. You can talk about risk but if you're buying stock in venerated companies with years of trading in a band, you're not taking much risk either. Sure, you're talking about couple point swing here or there but that's not real risk. The moment the stock shows a little dip, they can walk away with 90% of their investment intact.

The rank and file employee is taking the same risk as the CEO - opportunity cost except without the upside potential a la the CEO.

And when I mentioned gross - we're not talking about guaranteed base pay. We're talking about a model that's closer to how restaurants work. Base pay plus a percentage based on the gross (I realize that we've already agreed on the idea that we can use various metrics). Which is what a waiter gets, particularly at restaurants where they split the tips.

Start up founders are in a unique position. I simply disagree with the idea that the risk the employee takes is non-existent or that the day trader's risk is remotely in the same boat as the start up foudner or early investors. That's my point. I'm not claiming that risk is equal.

But we've both been involved in start ups and you know as well as I do that convincing talent to leave a secure institution and commit to your new venture is a risk on their side, especially when stock is not part of their compensation.

I think we've circled around each other points a bit but both agree risk varies. Fair enough.

I agree risks vary. But I maintain even the Apple Day trader 5 years post is not typically making money. If it was that easy everyone would do it. Making money as a day trader is a an extreme niche thing and most lose money. So the risk is high. Mosty don't know how or when to walk away. They end up chasing losses down and down hoping it will bounce back and they can recoup something more.

I would disagree the rank and file employee is taking the same risk. My mom choosing to go to the nursing home paying the same as the hospital and then back to the hospital if it fails faces very little opportunity cost risk. Jobs were plentiful and her time between, would be minimal. The CEO can join a troubled company where they hope he can turn it around, a growth company on a rocket trajectory or a mature and stable non growth company that is rock solid. All will have different risk/reward profiles for him and different upside potential. His risk (opportunity cost) can be massive in the right or wrong decision.

TO your last point, yes, 100%. Back in the late 90's, early 2000's it was hell trying to get top students or employees to leave (or not choose) a IBM type employer over a DotCOm startup. It was hell and you started companies mostly with consultants who had the flex to pursue their own practices while working for you.

That changed once ranks and ranks of DotCOm millionaires emerged not just from founders but from early employees with stock options. Suddenly the path of 'sticking with IBM or a big Bank' became the less desirable path for talented employees and graduates as they realized the Banks and IBM types would always be there is the entrepreneurial venture failed. People were devaluing the 30 year plan to retirement with one big company and willing to bet on a few start up gambles which could take far less time to make far more money. And when Venture capital really flocked in making it so these people did not have to start out of garages (Gates, Jobs) and they could work in cooler offices than at the big companies that really changed things. Anyway I am rambling in to tangential areas.

 

[MikeMcMann]

I would argue they have the same interests as any shareholder at that point. They would just be voting in a board, as share holders do.

i am not following you.

OK so a company is built and successful and the founders have cashed out. That means they sold the equity in the company to a third party. And that party is now the owner. How do you see the employees getting control??

There is one method but it is rarely done as its typically too burdensome. That would be to pay out the Founders by borrowing debt against the company (basically like a home mortgage) and then having the company over years thru its profit pay it all off and thus all the equity is now owned by the company's employees.

But i still go back to my question.

Lets say a few years post this the company needs capital to survive. Where do they get it? It is unlikely the employees will kick it back in from what they have received over the last few years. Few have that appetite. So you bring in new investors, and they take control again.

A company needs a risk base (investors) and a non risk base (daily employees) both as they both provide very different things for very different remuneration. But what tends to happen is that if a company becomes successful the people who wanted nothing to do with the risk start saying they deserve some of the reward.

And a good company will share that with them thru incentive that benefits both, not just because they work there.

 

[MikeMcMann]

Revenue is not a great metric. The point is to share in the upside, imagine if every employee was incentivized to increase sales regardless of profit. That’s already a huge problem. GAAP is all we got, have to live with it. Also if these are negotiated not handed down by govt, you can move the gaap plus, ie restrict the games that can be played.

i generally agree.

I think an employee who wants to sell their labour is entitled to a fair full compensatory wage and nothing more during the growth phase of the company especially where there is no profit beig derived and its being funded by someone else risk capital and they are losing money until the company turns to profits.

When you see Revenue shares such as in the NFL that really only is a profit share by another name. They have long term stable predictable profits which they can forecast with almost no risk going forward and so to make the players union happy they decouple the 'risk' of profit share and put it on the front end with revenue. BUt it is the same thing to the owners in the end.

Now if the NFL suddenly started to lose lots of money they would force the scrapping of that model almost immediately as it would be untenable. It would untenable to ask the owners to keep plowing in more and more new money to try and get it back to profitability while the players were scooping out some of that money as a revenue share.

That said, we've seen situations in some markets where companies are not valued on typical metrics. Tesla is the perfect example. Unlike Amazon that was actually making money (margin) on their business and losses were only because of re-investment in growth, I don't think Tesla made any money until last year. And yet investor returns (equity) was high. So I could see tying some employee remuneration to that revenue growth and market share growth, if that is what the investors are being rewarded for. Sure at some point that has to turn to a profit driven metric but at the start, I would not fuss.

 

[irish_thug]

unions are there own worse enemy. bunch of fucking douche bags fighting for douche bags

i support unions tho, although i'd never be a part of one

As a union member, and former union boss, I agree.

 

[Gandhi]

i generally agree.

I think an employee who wants to sell their labour is entitled to a fair full compensatory wage and nothing more during the growth phase of the company especially where there is no profit beig derived and its being funded by someone else risk capital and they are losing money until the company turns to profits.

When you see Revenue shares such as in the NFL that really only is a profit share by another name. They have long term stable predictable profits which they can forecast with almost no risk going forward and so to make the players union happy they decouple the 'risk' of profit share and put it on the front end with revenue. BUt it is the same thing to the owners in the end.

Now if the NFL suddenly started to lose lots of money they would force the scrapping of that model almost immediately as it would be untenable. It would untenable to ask the owners to keep plowing in more and more new money to try and get it back to profitability while the players were scooping out some of that money as a revenue share.

That said, we've seen situations in some markets where companies are not valued on typical metrics. Tesla is the perfect example. Unlike Amazon that was actually making money (margin) on their business and losses were only because of re-investment in growth, I don't think Tesla made any money until last year. And yet investor returns (equity) was high. So I could see tying some employee remuneration to that revenue growth and market share growth, if that is what the investors are being rewarded for. Sure at some point that has to turn to a profit driven metric but at the start, I would not fuss.

In our case, break even company, we looked at variable contribution margin plus/minus change in variable cost. It moved in the exact same direction as profit, had the same incentives but was a bigger pie to slice up. We ended up doing nuttin though.