The best thing that can happen to a proposal is to be argued with. These are the strongest objections this paper has found, with the answers the model gives. Where the honest answer is that FairShare pays a price, the text says so. The chapter ends with the results that would show the proposal has failed.
Sorting a complaint
Chapter 1 said that people inside FairShare will sometimes find it unfair. Two questions help in deciding what to do about a complaint.
- Is there evidence for it? Some complaints can be checked against published figures: a placement that does not match the band definitions, or a duty called so often that it has become a role. Others rest on a sense that something is wrong. Those count too, because people leave companies over what they feel. They are answered by explanation and by a vote, since there is nothing to look up.
- Can anything be done about it? The table gives the four possible answers.
| Kind of complaint | Example | What can be done |
|---|---|---|
| Fixed between colleagues | A colleague is in the wrong band | A review at the next cycle |
| Fixed by the council | The reserve is too large, or a duty credit too small | The council changes it, and the council is elected |
| May need the model to change | A loss year falls hardest on the lowest-paid | The floor softens it today. A better rule may exist |
| The price of a rule | A top earner could be paid more elsewhere | Nothing. The cost is stated and accepted |
The objections below are of all four kinds.
Won’t the best people leave for more money?
Some will. A Principal in the example company earned $230,000 in a good year and $150,000 in a bad one. Someone who can earn several times that elsewhere, and wants to, will go or will never apply. FairShare accepts the loss. Its bet is that a company keeps more than it loses when nobody inside it is underpaid, pay is not a secret, and everyone shares the result. The bet is untested.
Won’t people vote to cut colleagues and raise their own share?
They would gain by it, and that should be said. Every role that ends leaves more of the pool for the people who remain. Chapter 13 sets four rules against the incentive: a role ends only because its work has gone, a shortage of money reaches jobs last, whoever leaves keeps earning Futures for a published period, and a sale is divided over five years of work. The rules slow the incentive and expose it. They do not remove it. The studies of cooperatives cited in Chapter 13 found the opposite behavior, with jobs protected and pay reduced, but those were other firms under other rules. A FairShare company that sheds people faster than the companies around it has failed one of the tests at the end of this chapter.
Can’t people vote each other into higher bands?
They can try, and they would pay for it. Salaries come out of net income before the pool is calculated, so an inflated band lowers the value of every Future, including those of the people who voted for it. Published definitions and published placements make inflation visible as well as costly.
What about sales commission?
FairShare has none. People in sales are placed in bands like everyone else, and their success reaches them the way it reaches their colleagues, through a larger pool. This will not suit every salesperson or every sales culture. A company that keeps a commission should keep it small and publish it, and should recognize that it has stepped outside the model.
Why would a founder or an investor accept this?
Many will not. A founder gives up the shares and the chance of a windfall from a sale beyond an equal share of it. An investor gives up control and any return that is not backed by profit. What each gets is described in Chapter 12. FairShare is for founders who want to build a company on these terms and for investors who want cash returns from profitable companies.
Can someone with money buy a bigger share?
Only within limits everyone can see. Anyone buying Futures with outside money pays the published price, needs the council’s approval and counts toward the cap, which in the example is 10 percent of a year’s Futures and which the charter never lets rise above half. No one can buy votes, shares or better terms.
What happens when there is no profit?
Futures for that year pay nothing, salaries are paid from the reserve, and the effect on people’s income arrives the following year. Chapter 15 works through a loss year and shows that it falls hardest on the lowest-paid. That is the reason to set the lowest band at a figure people can live on.
If the reserve itself runs out, the council can declare a lean period. Everyone is then paid up to the floor before anyone is paid above it, and what goes unpaid is logged and converted to Futures later. Chapter 12 gives the rule.
Doesn’t the market still set pay?
It still sets limits. A company cannot hire if its bands are too low to live on, or too far below what a scarce skill commands. The council sets the figures knowing this. The difference is in what it may do about it. It cannot make a private exception for one person or one function. If the top band has to rise, the fixed spread pulls the rest of the ladder up with it. The other options are to train people inside the company or to do without.
Isn’t this too complicated?
The model has eight rules and one sum. An employee needs to know three numbers to work out their pay: their band figure, the days they worked and the value of the year’s Future. A typical stock option grant asks them to understand strike prices, vesting schedules, exercise windows, liquidation preferences and a valuation nobody can check. The parts of FairShare that are complicated, the trust and the terms of a Futures sale, are set up once by the company.
How is a Futures payout taxed?
That depends on the country, and a company needs local advice. In many places a profit share is likely to be taxed as ordinary employment income, while gains on shares are often taxed more lightly. Where that is so, it is a real cost of choosing Futures over equity.
There is a second question, about the company’s own tax, and the one sum hides it. The sum starts from net income after tax. But a payout to someone on the payroll is pay, and pay is usually a cost the company deducts before its profit is taxed. In the United States the deduction covers “a reasonable allowance for salaries or other compensation for personal services actually rendered.”2 Where that holds, the tax depends on the size of the pool and the pool depends on the tax, so an accountant has to solve the two together. The company’s tax then falls mainly on what it keeps, which is the reserve, and possibly on what it pays to investors, whose Futures are not pay. The employer’s own payroll taxes on the payout have to come out as well.
None of this changes the rule. Every Future of a year still pays the same amount to whoever holds it. What changes is the number the sum starts from. The examples in this paper treat net income as the figure after all of these, and a company adopting FairShare should settle how that figure is reached before it publishes its first sum.
Has anyone done this?
No. The parts have precedents: trust ownership, profit sharing, published pay and capped pay ratios all exist, and Chapters 8, 9 and 11 cite them. The combination has not been run, in particular the equal share per day. Chapter 15 is arithmetic. The first company to adopt FairShare will be the first evidence for it.
Notes
- Freeman, R. B., Kruse, D. L., & Blasi, J. R. (2010). Worker Responses to Shirking under Shared Capitalism. In Shared Capitalism at Work. University of Chicago Press. https://www.nber.org/papers/w14227
- 26 U.S.C. § 162(a)(1).