Bayle Shanks's website: ideas-groupDecisionMaking-corporateOwnership

Overview

How to distribute control in a corporation principally owned by employees? How to distribute control in a non-profit to include donors?

The 7 coop principles say that a coop should be one person, one vote. But I think there's reasons to give more control to some people than to others.

First, some people may be more knowledgable, or be better decision-makers than others. Second, some people might contribute more capital than others, in which case they will want more of a say.

I propose that a sell some of its shares (to employees or to outsiders), and lend the rest of its shares to its employees according to a fixed algorithm; the shares on loan give both voting rights and dividends to whoever possesses them, and it doesn't cost the borrower anything to borrow them, but they get redistributed periodically according to the algorithm.

Specifically, I propose that shares be distributed as follows:

44.4% (4/9): shares which are reallocated frequently according to Self:ideas-trustMetrics-iteratedGivingOverview
33.3% (1/3): shares sold like normal and really owned by people
22.2% (2/9): shares which are reallocated monthly according to the following employee stock bonus plan

So, note that since both the 44% and the 22% goes to employees, and since employees will own at least some of the 33%, therefore as a group the employees directly control over 2/3s of the stock. The 44% pool will mostly be controlled by employees whom other employees trust to make decisions (and deserve dividends), the 33% will mostly be controlled by rich people, and the 22% will mostly be controlled by employees who are poor enough to only own a few shares of stock.

Employee stock bonus plan

The objectives of the plan are:

to provide an incentive for employees to purchase a little bit of stock (thereby increasing the amount of employee ownership, which is good both because it increases the demand for shares, and because it increases employee control)
to reduce concentrations of power among employees by making the distribution of stock over employees more flat.

An employee must acquire shares (out of the pool of 1/3 shares which are actually owned) in order to benefit from the bonus plan. They don't have to buy the shares directly from the company, they can acquire the shares in any way from anyone.

Each employee reports to the plan administrator how many shares they own each month.

Define W to be a vector such that the j-th component of W is the number of shares that employee j currently owns.

Employee j is awarded the following proportion of the employee stock bonus plan stock pool:

\frac{(W_j/p)^0.75}{sum((W/p)^0.75)}

Octave/MATLAB code to compute this:

W.^0.75 / sum(W.^0.75)

(since the entire bonus plan stock pool is 2/9th of all the stock, that means each employee gets 2/9*(W.^0.75 / sum(W.^0.75)) of the total stock through this plan)

Why do we raise to the 3/4ths power? This way the derivative of an employees bonus decreases as the amount of stock they own gets larger. So, the marginal reward for an employee who owns a lot of stock and buys a little more is small, but the marginal reward for one who owns little or no stock and buys a little is large. This is how we reward the little guy more than the big guy, and also how we flatten the distribution of stock over employees a little bit.

Example

Let's say we have a corporation whose employees have, in sum, bought 3000 shares of stock. One guy has 1000. There are ten guys who each have 100 shares. And there are 100 guys who each have 10 shares.

Lets assume that there are 100 shares in the bonus pool.

Octave/MATLAB code:

W(1) = 1000
W(2:11) = 100
W(12:11) = 10
sum(W)
      3000
b=W.^0.75 / sum(W.^0.75);
sum(b(1))*100
      16.8
sum(b(2:11))*100
      29.9
sum(b(12:end))*100
      53.2
b(1)*100
      16.8
b(2)*100
      2.99
b(12)*100
      0.532
b(1)/W(1)*100
      0.0168
b(2)/W(2)*100
      0.0299
b(12)/W(12)*100
      0.0532

So, 16.8% of the bonus pool goes to the one guy with 1000 shares. 29.9% goes to the ten guys with 100 shares (each of them gets 2.99%). And 53.2% goes to the 100 guys who each bought 10 shares (so they each get 0.5%).

Looking at each person's per-share bonus: the guy who bought 1000 shares gets a bonus of 0.0168 per share. Each guy who bought 100 shares gets a bonus of 0.0299 per share; and each guy who bought 10 shares gets a bonus of 0.0532 per share.

Legal obstacles

IANAL, but maybe there's some law that prevents a company from controlling/redistributing its own stock in this manner; and perhaps the outside stockholders would be able to claim some sort of unintended rights. In this case, maybe the word "stock" above should be replaced by the word "not-stock", and the actual stock held by some entity whose only job is to enforce the algorithm -- as long as people are explicitly buying/being given "not-stock", which they know behaves different from stock, I would imagine there should be no problem.

This page was spin out of the notes from Self:ideas-hypotheticalConstitution.