Beyond wages: It's time for a true fair share. This section explores the fundamental principles of economic justice, and how to ensure that workers receive the compensation they deserve, moving beyond basic salaries and focusing on an equitable distribution of the profits generated by our collective effort.
The concept of profit sharing has long been debated, often framed as a tug-of-war between capital and labor. However, a truly equitable model acknowledges the vital contributions of all factors of production: labor, capital, and management. When we eliminate labor taxes, a significant hurdle to fair compensation disappears. The aim is to create a system where everyone is invested in the success of the company, fostering collaboration, innovation, and a sense of shared purpose.
Our model of profit sharing is based on the following key principles:
Recognize that labor, capital, and management each contribute to the value a company creates. Profit is not solely attributable to one factor alone.
Before profit sharing, all labor (including management) should receive a fair market wage that covers living expenses and reasonable savings. In this context, "fair" is determined by the market rate for equivalent skills and experience. Capital is also entitled to a "base return" that reflects the risk associated with the investment. This base return is equivalent to a "fair market" interest rate, what we might call the "time value of money".
Once these base amounts are settled, profit sharing is based on each factor's proportional contribution to the company's overall revenue. A modern framework goes beyond simple formulas, taking into account different factors.
Note: we can choose not to use salaries for the managerial portion. The idea being that management's interest is to increase both revenue and efficiency, their success being measured not only on the revenue but also on the cost of production.
The system is not rigid. It can be adapted to account for changing market conditions, industry specifics, and company-specific factors. The proportion is determined at the end of each fiscal year, but the calculation principles remain constant.
Profit sharing calculations must be transparent and clearly communicated to all stakeholders. Open dialog and understanding of the calculation process is essential to build trust and avoid discord.
Some portion of the shared profit should be retained within the company for future growth, innovation, and stability. This amount must be decided upon by all the 3 Factors, at the end of the fiscal year.
All the profits stay within the company. As labour taxes have been eliminated, there is no need for a government entity to collect any additional percentage of the revenue.
Let's consider a fictional technology company, "Innovate Solutions," that operates under this profit-sharing model.
Directly Proportional to Contributions: Each factor receives a portion of the profit proportional to their input, ensuring no single group benefits at the expense of others.
Incentivizes All Factors: Because all factors are directly linked to the success of the company, all are incentivized to work towards maximizing profit.
Promotes Collaboration: The system promotes cooperation and avoids zero-sum game situations. Because everybody profits from the success of the company, nobody has incentives to undermine it.
Transparent and Trust-Based: The transparent nature of the calculation builds trust among the various stakeholders.
Encourages Sustainability: The reinvestment portion ensures long-term health and resilience for the company.
Measuring Contribution: While the calculation method seems quite straight forward, there could be other considerations to adjust the proportions of the profit sharing (to better measure the real value contributed by each of the 3 factors of production). The important part is to start the discussion and agree upon clear and transparent rules.
Risk: All stakeholders share the risk and reward, creating a safety net against failures.
Dynamic Adjustment: The proportions could be adjusted year over year, depending on market conditions and business decisions. Again, the key element being that the rules and the reasons for changing those rules, are transparent to all stakeholders.
The traditional approach to profit sharing often pits labor against capital, creating inherent conflicts. This modern profit sharing model, as presented here, moves beyond such conflicts. By recognizing the value of labor, capital, and management, and distributing profit fairly among them, we can build stronger, more resilient, and more just economic systems. This model is not just about sharing wealth, it's about fostering a culture of shared responsibility and collective success.
This new form of profit sharing does not create a socialist nor a communist system, but simply an economic model where workers and investors share in a new collaborative way.
By adopting a model that acknowledges the full scope of a company's stakeholders, we move a step closer to a more just and equitable society.
The cover picture for this article is AI-generated.