The earlier chapters describe the model running. No company begins there. This one covers getting into it from different starting points, and getting out of it through a sale or a closure. The cases are ordered from easiest to hardest.
First, the sum
Before choosing a route, a company does the sum from Chapter 8: what is left after every cost except salaries, for each person, counted in floors.
- Under one floor a person, the company cannot pay everyone a living wage. It cannot adopt FairShare until it has raised its prices or changed its work. The section on adopting part of the model, later in this chapter, covers what it can do in the meantime.
- Between one floor and the cost of its ladder, it can adopt with a narrower spread, and should expect a small pool. A business in which most of the revenue already goes on wages and materials will find itself here. FairShare would still change it, and nearly all of the change would come through the ladder.
- Above the cost of its ladder, the whole model is open to it.
It is better to learn this from one sum on the first day than from the accounts at the end of the first year.
Starting a company on FairShare
A new company is the simplest case, because there is nothing to unwind.
- Put the shares in the trust at incorporation. With three people, the council is all three. A company too small to carry the cost of a trust can form a cooperative with the charter in its bylaws, as Chapter 11 describes.
- Publish the ladder before the first hire, even if the company cannot yet pay it. Log the shortfall for everyone paid below their band, as Chapter 12 describes.
- Set the reserve high. Before the first profit the pool is empty whatever the percentage. In the first profitable years the council may keep most of net income, and should say for how long.
- Fund the gap by selling Futures for the years when profit is expected. The early price will be low, because the risk is high.
- Set the cap for the early years, and say when it will come down. Three people earn 600 Futures a year. Under a cap of 10 percent they could sell 66. A young company that means to raise money or to convert logged pay needs a cap much nearer the charter’s ceiling of one half.
- Place each other by the second question. In a company of three, everyone works unaided and everyone’s effect reaches the whole company. Chapter 8 places a person at the highest band where all three answers hold, and in a small company it is the range of work a person can handle that decides.
One consequence should be clear to early staff. Futures earned by working in a year with no profit pay nothing. The reward for the lean years is the logged shortfall, converted at the first outside investor’s price, or at the charter’s rate if there is no such investor.
Converting an established private company
Here the shares belong to someone, and salaries already differ by more than the ladder allows.
Buying the shares. The trust has to buy out the existing owners. Sales to employee ownership trusts are commonly paid over several years out of the company’s future profits, with the sellers waiting for most of their money.1 In FairShare that money comes from the reserve, so the council sets a higher percentage until the sellers are paid. Owners and investors who prefer can take part of the price in Futures for named years, at the investor price and within the cap. Employees’ existing shares and vested options are bought at the same price per share as everyone else’s.
How long the purchase takes is one division, and a company should do it before it begins. The years needed are the price divided by what goes into the reserve each year. With the price counted in years of net income:
| Price, in years of net income | Reserve at 50 percent | Reserve at 70 percent |
|---|---|---|
| 4 | 8 years | About 6 years |
| 6 | 12 years | About 9 years |
| 8 | 16 years | About 11 years |
The sum ignores interest and growth, and it assumes the reserve has nothing else to pay for, which is never true. Three things follow from it, and the people being asked to adopt FairShare should hear all three.
- For those years, most of the profit still goes to the sellers. With the reserve at 70 percent, the pool is less than half the size it will be once the reserve returns to 30. The workforce gets the ladder on the first day and most of the pool years later.
- The people who work through those years pay for a company that later colleagues receive whole. The trust holds it for both. This is a cost of buying a company for a trust, and FairShare does not escape it.
- The net income to use is the figure after the ladder. Placing everyone in bands changes the payroll, and the owner’s own work now carries a band salary. In a small firm, much of what the owner took home was pay for that work. The profit left over is smaller than the old accounts show, and a trust can only pay a price that this smaller profit will cover.
The sale agreement should also say what happens to the instalments in a year without profit. If the sellers can demand payment in such a year, they can force a lean period on the people who are buying from them.
Such transitions are routine. In the United States alone, an average of 243 new employee stock ownership plans were created each year between 2015 and 2021.2
Moving salaries onto the ladder. Everyone is placed in a band by the process in Chapter 8. People paid below their band are raised at once. People paid above the top band are brought down over a stated period, a year for example.
This is where a conversion hurts. The highest-paid people take a cut in salary, partly offset by Futures, and some will leave. A company should work out who they are and whether it can lose them before it begins.
Acquiring another company. The acquired staff are placed in bands and earn Futures from their first day. The purchase is paid for like any other investment, out of the reserve or by selling Futures.
Adopting part of the model
Three kinds of company cannot adopt FairShare whole. In the first, the owners are not ready to give up their shares. In the second, the sum at the head of this chapter comes to less than one floor a person, so the company cannot yet pay everyone a living wage. In the third, the profit is too thin for a trust ever to buy the owners out. None of them has to stand still. FairShare comes down to four numbers, and any company can work out its own, publish them, and move them.
| The number | In FairShare | A first step |
|---|---|---|
| Lowest pay, as a share of the local living wage | 100 percent or more | Publish the gap, and commit a fixed share of every rise in what is left per person to closing it |
| Highest pay, as a multiple of the lowest | 3 or less | Fix the multiple where it stands today, so that the top can rise only when the bottom does |
| Share of profit divided equally by days worked | All of it, after the reserve | A stated fraction, fixed before the year begins and raised on a published schedule |
| Share of the company held for the people who work in it | All of it | An elected council that sets the published lists, and a trust or cooperative that builds a stake |
Pay here means everything a person receives for their work in a year, and the owner’s pay counts like anyone else’s.
Each kind of company has a number it can move first.
- A company under one floor a person cannot raise the first number by deciding to. It can move the second today, at no cost, by fixing the multiple where it stands. From then on the only way to raise the top is to raise the bottom. A restaurant that pays its lowest wage at 70 percent of the living wage can also publish that figure, and commit half of every rise in what is left per person to closing the gap.
- An owner who is not ready to sell can move the third. A tenth of the profit, divided by days worked and fixed before the year begins, is small. It is also the first profit in that company to be shared by a rule that does not ask what anyone’s title is.
- A company whose profit will never buy the owners out can move the first three all the way, and the fourth part of the way. A trust or a cooperative can hold a stake that grows as the reserve allows.
Some pieces of the model need the trust, and some do not.
| Piece | Works without the trust? | What is missing |
|---|---|---|
| Bands with fixed, published figures | Yes | Nothing |
| The in-house test and contractor floor | Yes | Nothing |
| Benefits by circumstance | Yes | Nothing |
| Equal profit share per day | Yes, as a profit-sharing plan | The owners decide the pool each year and can end the plan |
| Rollover and investor Futures | No | Without a charter, a purchased claim on profit has no protection |
Two rules separate a step from a gesture.
- It is fixed in advance and published. The figure is set before the year it applies to, where everyone it covers can see it. A bonus decided in December is a gift. A share of profit fixed the January before is a rule.
- It holds. A step once taken can be reversed only after a stated period of notice and a vote of the people it covers. Without this, each step lasts until the first bad quarter.
The second rule is a promise made by the owners, and a promise is not a charter. Written into the company’s bylaws or its employment contracts it has more force, and a lawyer should say how much. The shares stay with the owners, and so does the last word. For that reason partial adoption is worth doing, and it is not FairShare.
A company that takes this route publishes its four numbers each year. At 100 percent, 3, all and all, it is a FairShare company. Short of that, the numbers show anyone who works there, or thinks of working there, how far it has come and which way it is moving.
A sensible order is the multiple and a published ladder first, because they cost nothing on the day. The floor comes next, then the profit share, then the trust.
Companies listed on a stock market
A listed company cannot place its shares in a trust without buying them from the public. It can adopt bands, benefits and an equal profit share, and it can have a trust build a stake over time. The four numbers above measure its progress as they would anyone’s. The full model is probably out of reach for a listed company unless it is taken private first.
More than one country
- The floor is set per location. It is the living wage in each place, found by the method in Chapter 8. The bands, the spread and the steps are the same everywhere, so the figures differ only because the floor does.
- Futures are the same everywhere. A day worked earns one Future in any country, and every Future of a year pays the same amount in the company’s reporting currency.
- Local law comes first. Minimum wages, notice periods and statutory profit sharing apply wherever they exist.
A floor that varies by place adjusts for what money buys there. It is not a return to paying whatever the local market will bear for a role. The equal Future also means that profit is worth more to people in cheaper places.
A sale
The council decides whether to sell. If it does, the proceeds are divided in two steps.
- Purchased Futures for years not yet closed are settled first, at the value of the most recent closed year’s Future.
- The remainder is divided among the people who earned Futures by working in the five most recent closed years, in proportion to the Futures they earned. Purchased Futures take no part in this step.
Payouts already owed for closed years are untouched, because that money is with the custodian.
Suppose the example company is sold at the start of 2030 for $253 million. Investors and staff hold 8,000 purchased Futures for 2030 and later, and the last closed year’s Future paid $375, so $3 million settles them. The workforce earned 250,000 Futures from 2025 to 2029, and the remaining $250 million is $1,000 for each.
| Person | Futures earned, 2025–2029 | Share of the sale |
|---|---|---|
| Worked all five years | 1,000 | $1,000,000 |
| Joined at the start of 2028 | 400 | $400,000 |
| Worked 2025 and 2026, then left | 400 | $400,000 |
Band makes no difference, and neither does whether the person is still there. A year in which the company made a loss counts the same as any other, because the Futures were earned even though they paid nothing.
A closure
If the company is wound up, creditors are paid as the law requires. After that:
- Purchased Futures for years not yet closed are repaid at the price paid for them, in proportion if there is not enough.
- Anything left is divided by the same five-year rule as in a sale.
The two rules differ on purpose. In a sale the buyer is paying for future profit, so holders of future years are paid at a real recent value. In a closure there is no future profit, and the most a buyer of Futures can fairly expect is their money back.
Notes
- ICAEW. (2024). An introduction to employee ownership trusts. https://www.icaew.com/technical/tax/tax-faculty/taxline/articles/2024/an-introduction-to-employee-ownership-trusts
- Blasi, J., & Kruse, D. (2024). Employee Ownership and ESOPs: What We Know from Recent Research. Aspen Institute. https://www.aspeninstitute.org/wp-content/uploads/2024/04/Employee-Ownership-and-ESOPs-What-We-Know-from-Recent-Research-1.pdf