In FairShare, profit reaches people through Futures. That raises a question most pay systems never have to ask. If the shares do not carry the profit, who holds them, and what are they for? The answer is a trust, governed by a council that everyone in the company elects.
The trust
All of the company’s shares are held by a trust. No person owns any: no founder, executive, employee or investor. The trust’s charter gives it one purpose, which is to hold the company for the people who work in it, now and later. Those who will work there in thirty years have the same claim as those who work there today.
With profit flowing through Futures, ownership comes down to three things.
- Control. As the only shareholder, the trust appoints and removes the company’s directors.
- The reserve. Profit that is kept back stays in the company, and so belongs to the trust. No individual can take it out.
- The proceeds of a sale, if there ever is one. Chapter 14 gives the rule for dividing them.
Precedent
Trust ownership is old, and it works at scale. Spedan Lewis placed his shares in the John Lewis business in trust for its staff in 1929 and handed over his remaining shares and control in 1950. The Partnership now employs tens of thousands of people.1 Arup, the engineering firm, has been owned in trust for its employees since 1977 and has no individual shareholders or outside investors.2
The legal vehicle depends on the country. The United Kingdom has had a statutory employee ownership trust since 2014, and in the United States the usual form is a perpetual purpose trust that names employees as its beneficiaries.3 Choosing and drafting one is work for a lawyer where the company is based.
A trust has a fixed cost to set up, and a company of six may not be able to carry it. For a company that small, the nearest existing form is a worker cooperative. It already runs on one member, one vote. In the United States a cooperative may divide its surplus among its members by the hours they worked and deduct what it pays out, which is a Future in everything but name.4 It differs from FairShare in two ways that matter. Members usually buy their way in and hold accounts of their own, and they can vote to change the rules. So the charter’s fixed rules have to be written into the bylaws, with the same high threshold for amending them. A cooperative can be a FairShare company. Being a cooperative does not make it one.
FairShare differs from these firms in one respect that matters. When John Lewis pays a bonus, it pays the same percentage of salary to everyone, so a higher salary brings a larger share of the profit. FairShare shares profit by the day.
The council
The trust is governed by a council. Everyone on the payroll has one vote in electing it, and anyone on the payroll may stand. A founder’s vote counts the same as a new hire’s.
Five to nine members on staggered terms of two or three years is a workable shape, and a company too small to need an election can make everyone a member. Serving on the council is part of a member’s working day and earns nothing extra.
The council does not manage the company. Directors and managers do that. The council decides five things:
- The directors. It appoints and removes them, on behalf of the trust.
- The reserve. It sets the percentage of net income to be kept back, before the year begins. When the reserve cannot cover salaries, it is the council that declares a lean period, described in Chapter 12.
- The cap on purchased Futures. It limits how many of any year’s Futures can be bought with money, by anyone, inside the ceiling the charter sets. It also sets the fee paid to anyone who gives a personal guarantee for the company’s borrowing, described in Chapter 12.
- The bands and the published lists. It sets how many bands there are and where the floor sits, by the method in Chapter 8. It also sets three lists: the benefits described in Chapter 10, the hard conditions that shorten the standard day, described in Chapter 8, and the duties and their credits described in Chapter 13. With them it publishes the period for which a person whose role has ended keeps earning Futures.
- Any sale of the company or of a major part of it.
What the council cannot change
Some rules sit in the charter, out of the council’s reach.
| Fixed by the charter | Set by the council |
|---|---|
| One Future per day worked, for everyone | The reserve percentage |
| Every Future of a given year pays the same | The cap on purchased Futures |
| Half paid on January 1, half monthly, nothing forfeited | The number of bands |
| The lowest band is at least the local living wage | The floor, and with it every band figure |
| The top band pays at most three times the lowest, in equal steps | Who the directors are |
| One person, one vote | The list of benefits |
| Purchased Futures are never more than half of a year’s Futures | The list of duties and their credits |
| A year’s reserve percentage is not raised once a Future for that year has been bought | The list of hard conditions and their standard day |
| Logged pay converts at an outside buyer’s price, or at the charter’s rate | |
| In a lean period, everyone is paid up to the floor first | |
| Roles end for want of money only in a lean period, and whoever leaves keeps earning Futures for a published period |
These are the rules a majority might be tempted to bend in its own favor. A council of long-serving staff could otherwise vote itself a multiplier. A council of two founders could convert their own unpaid years at a price of their choosing, and hold most of every pool for a decade at the expense of people who have not been hired yet. The last five rows are there for the people who are not in the room or are about to leave it: the buyer of a Future, the later hire, the lowest-paid in a bad year, and the colleague whose role is ending. Changing the charter takes a vote of the whole workforce, at a threshold set when the model is adopted.
Who has no vote
Investors hold Futures, not shares. They have no vote, no seat and no veto, and they see the same published numbers as everyone else. People who have left keep the payouts they earned but not their vote.
Where this is weak
Democracy is no guarantee of wisdom, in companies or anywhere else. An elected council can still make poor decisions. Nothing in the model stops a workforce from setting the reserve at zero and paying itself everything this year. The check is that the same people depend on next year’s profit, and that the percentage is set and published before the year starts, where everyone can see it. A council can also be captured by whoever bothers to stand. One person, one vote limits the damage, but does not make people take part.
Notes
- John Lewis Partnership. The history of the Partnership. https://www.jlpjobs.com/blog/the-history-of-the-partnership/
- Arup. Our history. https://www.arup.com/about-us/history/
- Finance Act 2014 (UK), Schedule 37. https://www.legislation.gov.uk/ukpga/2014/26/schedule/37. For the United States: Rutgers Curriculum Library for Employee Ownership. Employee Ownership Trusts and Perpetual Purpose Trusts in the United States. https://cleo.rutgers.edu/articles/employee-ownership-trusts-and-perpetual-purpose-trusts-in-the-united-states/
- Co-opLaw.org. Subchapter T Patronage Taxation. https://co-oplaw.org/subchapter-t-patronage-taxation/. The page cites Revenue Ruling 71-439, which treats distributions to members by hours worked as patronage dividends, and Puget Sound Plywood v. Commissioner (1965) on deducting them.