Chapter 3 followed three people on the same pay to three very different places. Each was paid the same dollar. What it became depended on how much of it they could afford to invest and on the return they could get:
K = P \times IC \times (1 + CR)^{t}
Here P is the pay, IC is the share of it the person can invest, CR is the yearly return available to them, and t is the number of years. Two people on identical pay end up far apart when one has a higher IC or CR.
Bands and Futures settle P. This chapter covers the two parts of the model that act on the other terms. Benefits raise the share a person can invest. Rollover raises the return they can reach.
The equal Future already does the most for IC. In the example company’s 2027, the Futures payout took the total pay of someone in the Junior band from $50,000 to $130,000, more than two and a half times the salary. Nothing else in this chapter moves the investable share as much.
Benefits
Some costs fall on some people and not on others, and they decide how much of a salary is left over. In the United States, the median price of childcare for one child ran between 8 and 19.3 percent of median family income in 2018, depending on the child’s age and the kind of care.1 About one adult in five was caring unpaid for a relative in 2020.2
FairShare meets those costs with benefits and leaves salaries alone. Three rules apply.
- Benefits attach to circumstances. Childcare, care for a relative, health costs and commuting are the usual ones. Band, length of service and negotiating skill play no part.
- The same circumstance gets the same benefit. The list and the amounts are set by the council and published.
- Benefits are never used to adjust pay. A band figure means the same thing for everyone in the band.
Take two people in the Standard band on $100,000. One has no dependants and can set aside $10,000 a year. The other pays $12,000 a year for childcare and can set aside nothing. A childcare benefit of $9,000 leaves both salaries as they were and gives the second person $9,000 a year they did not have.
Benefits are a cost to the company, so they reduce net income and the pool. People without these costs pay, through slightly smaller Futures, toward people who have them. That transfer is the purpose of the rule. Those carrying less take on part of the load of those carrying more.
Rollover
A higher return is usually reserved for people who already have money. Private funds and early-stage deals are open to those with capital and connections, as Chapter 3 describes. Rollover gives everyone in the company the same access an outside investor has.
Each January, when the lump sum is paid, a person may put any part of it into Futures for a later year. They pay the price the council has published for that year, which is the price an outside investor pays.
- The ceiling is the person’s own lump sum. Because payouts are equal per day worked, the ceiling is the same for everyone who worked the same days. Money from outside the company cannot be rolled over; Chapter 12 treats it as an investment.
- Rollover counts toward the cap on purchased Futures. When the cap leaves room for only some buyers, rollover is filled before outside money.
- Cash is the default. Nobody is asked to roll over, and nobody’s standing depends on it.
Two cases from the example company show the range. In January 2028 a person put $3,000 of their lump sum into ten Futures for 2029 at $300 each. Those Futures paid $375 each, so the person received $3,750 during 2030, a gain of 25 percent. Two years earlier a colleague had put $2,800 into ten Futures for 2028 at $280 each. The company made a loss in 2028 and those Futures paid nothing.
The risks of rollover
Rollover is an investment in one company, and it is the company the person already depends on for their salary. A bad year takes the rolled-over money and may threaten the job as well. Ordinary financial advice is to spread risk, and rollover does the opposite. It belongs in the model as an option for people who want it and understand it.
Selling an instrument like this to employees is regulated in many countries. A company adopting FairShare needs legal advice before it offers rollover.
What these two levers do not do
They narrow the gap in what a dollar can become. They do not close it. Someone who arrives with family wealth still has more to invest and more places to invest it than someone who arrives with debt. FairShare can change what happens to the money a company pays out. It cannot change what people bring with them.
Notes
- U.S. Department of Labor, Women’s Bureau. (2023). Childcare Prices in Local Areas: Initial Findings from the National Database of Childcare Prices. https://www.dol.gov/sites/dolgov/files/WB/NDCP/508_WB_IssueBrief-NDCP-20230213.pdf
- AARP and National Alliance for Caregiving. (2020). Caregiving in the U.S. 2020. https://www.caregiving.org/caregiving-in-the-us-2020/