A short essay on sharing profits in a company

Let's imagine a company has 100 employees. After many sales, the company has been able to buy an expensive machine. Thanks to that machine, production has increased by 50%. But, as it turns out, the company can actually meet demands if they sustain the previous level of production. With a 50% increase in production, they'd actually need 50 workers less. So what can the company do with its employees? One: it could lay off 50 of them. Or two: it could have everyone work half the hours for the same pay. And now 100 people have more time in their day to do other things. But that seems so foreign that it sounds strange. But we cannot disagree, that ideally, employees should be rewarded for having helped the company to buy the machine. Ideally, employees should be able to live better lives. The natural question is: why doesn't this happen? What is it that we're doing wrong?

In a typical company, the ones to see increases and decreases in profits are the investors. Collectively, they own the company, and take decisions on how profits should be used. And as such, they're the ones who feel the most when expenses are high and when profits seem low. Investors take a risk by investing in a company. Obviously, they should be compensated by the business owners. But to what point? In our example, if 100 employees continue to receive their wage despite working fewer hours, then that's less money that could be spent on paying dividends, which investors don't like and most likely won't agree to.

For example, Amazon employees, be it developers, designers, managers, warehouse workers, truck drivers or lawyers, make up the company and are the ones who make this service as amazing as it is. If some of the profits were to be shared between them, the company would neither lose in efficiency, nor in competitiveness in pricing. But they're paid in inelastic wages instead, which the investors count as expenses. And only shareholders end up seeing the growth in sales. Yet, from the view point of the customer, neither option is strictly worse. But isn't it odd, compared to sharing the growth among the employees, the ones providing us the service, the ones driving the sales? Somewhere along the line, the company's owner, often the founder, has chosen to sell its decision-making process to investors, for the sake of funding and self-enrichment. Still, some companies do choose to implement profit sharing to help incentivize employees. So does Amazon to some extent with RSUs.

If a few people are to start a company and choose to share ownership of the profits with themselves and future employees, it would set an important precedent on what fair pay possibly ought to look like in the future, and pressure other companies to do the same. For this to happen, investors have to be put on the sideline within the company, as maximizing profits solely for them isn't the priority anymore. It's likely the company will have to be owned by multiple employees so that no individual can sell the entire company to venture capitalists without others' approval.

These types of companies do exist, and they're sometimes called coops. On the Subreddit r/cooperatives, we see many examples of them, and examples of people wanting to join or start one. There are practical reasons to start a coop, but as some discussions on the Subreddit illuminate, it is often tough to get financing for a coop in the current economic landscape, as investors typically expect their demands to be met first and foremost. Still, there are ways to finance them by loans or crowdfunding (and similar ideas).

In our example, if the company was more of a coop, and thus investors weren't given ultimate ownership over profits, the team would be able to work fewer hours and enjoy the same pay. Investors theoretically make less than they could, and employees make more. Regardless, the company stays solvent.

So, should everyone start coops instead? I believe yes, and it's a development that, if it were to happen large-scale, would likely persist. Everyone wants to be fairly rewarded for the success of their work, and few people are after personal wealth, and even fewer people would want to be seen as greedy. Most people would like to see themselves and others lead comfortable lives, and to speak kind words to each other. Attributing success and therefore all ownership over profits to oneself would not only be viewed to be antisocial as it currently is, but perhaps even taboo in the future.