Friday, August 9, 2013

Lien Times for Startups

Part 1 | Part 2 | Part 3

Author’s Note: It became clear after writing this article and seeing some of the comments that my use of the word “startup” had been misinterpreted. I had not meant to imply anything so narrowly specific as Wikipedia attributes to this term, but rather to speak generally about any newly formed business, however owned, funded, or organized, that has not yet achieved its targeted, financially self-sustaining state. I'll thank you here in advance for respecting my intent and not getting side-tracked by my arguably poor choice of words.

We hear all the time how with great risk should come great reward. It's used as a way of justifying the flow of dollars to the founders of a company after it succeeds. These courageous benefactors of society have put their heart and soul into the company at great personal risk to themselves and their families, and so when the profits come rolling in, they deserve to share handsomely in the spoils.

Well, isn't that also what the people living at less than a living wage are doing? In my recent article Breaching the Social Contract, I noted that since the minimum wage is not tied to a living wage, minimum wage workers run a daily personal deficit as they struggle to survive. There's risk in that as well. They've put themselves out to make the company successful. Shouldn't they share in those spoils, too?

I'd like to see all workers paid a living wage, not just a minimum wage, but when discussing that idea, I often hear the concern that companies might not be able to turn a profit if wages were required to be so “high.” Funny how seldom one hears that same concern as those same companies think about paying their CEOs millions. “Just a cost of doing business. We'll find a way—we'll have to,” they mutter with steadfast determination, just as our nation's best schools have taught them to do. No problem too difficult for American ingenuity—other than finding a way to treat our most vulnerable citizens with dignity, I mean.

But, okay, suppose we accept that as a premise for this discussion that we need to ease cash flow for startups. Founders of a company, even if they'll later be paid millions, often do take a lower salary in exchange for stock, so let's say it's acceptable for workers in the company to be paid a minimum wage that's below a living wage while the company is getting going.

Even so, the founders are getting delayed compensation for taking their lessened salary. Why not delayed compensation for workers who are taking less than a living wage? We could say that before a dime of profit can be enjoyed by a company's owners, all workers must be making a living wage. After all, if there is profit to be paid out, then by definition there is surplus. So no one can claim that there is no money available for paying a proper wage at last.

And since it's really obvious that employees earning below a living wage have been making the largest sacrifice, risking their very day-to-day survival, it seems to me they should have a priority claim on money that might otherwise be deemed surplus, or profit.

Traditionally, the founders of a company will negotiate profit-sharing details as they form a legal partnership arrangement, but lower-wage workers rarely have the kind of clout needed to participate in that, so they need force of government to require that they're treated equitably.

One way government could help would be to maintain not just an official minimum wage but an official living wage. Everyone would always have to pay at least the minimum wage, but the difference between the living wage and whatever lesser wage they were paying would become a sort of priority debt that the founders were accumulating as they brought their company toward profitability. They could continue to continue to carry this debt while the company got up and running, but all the while there would be a sort of lien against the future profits of the company by the workers who had worked at this startup rate.

It seems to me that the only businesses that would not be able to accept rules like this are ones that could never break even without an ongoing tax on their employees' very ability to survive. If that's how a company is profiting, such businesses shouldn't exist anyway. If the company is profiting in other ways, there's no reason all workers who contributed to that profit shouldn't share at least to the degree of having enough money to live. Once a company is alleging any form of profit, that doesn't seem an unreasonable demand.

And anyway, if the debt to the workers ends up being huge, it certainly calls into question the claim so often heard that all the risk was on the part of the founders. Workers who've made a major sacrifices certainly deserve not to be overlooked.

Think of the decision to pay workers below the living wage as coming with a cost—the requirement to make such people a kind of temporary partner. Or think of it like members of a cooperative, where special priority shares get purchased by working at these lower-than-reasonable wages. Using one of these ways of thinking, a low-wage worker might finally be able to see their sacrifice as investment, and the founders could feel better that they weren't exploiting their workers.

Of course, if a company continues to lose money, it might legitimately claim that it can only ever afford a minimum wage. Perhaps it would never be able to make good. But that's a risk the founders take as well. And it's unlikely anyone would form a company with the intent in mind of never making money. So everyone is motivated to make things work: The owners will still want to make money. They'll just have to do it on the basis of an honest surplus based on product or service value provided, without the externality of a subsidy imposed on employees too poor or otherwise disempowered to defend the importance of their own contribution.

The ultimate purpose of this would be to assure that a company had not just a moral but a legal responsibility, once profitable, to treat its workers fairly, paying them a living wage. It doesn't require that a company profit—that would require magic. But it just says that profit must never come at the expense of someone's living wage. And it acknowledges risk that has always been there but rarely if ever spoken of—the risk of the day-to-day survival of the company's least well-paid workers.

And, yes, it does occur to me that companies might do creative tricks involving bankruptcy or splitting the sale of assets and debts to wash themselves of this kind of lien. I think that could be legislated around. After all, no one thought it too complicated to write laws that keep human beings from eliminating their education debt. Where there's a will, there's a way. It's amazing how obstructionist the capitalists can be when they think they're about to lose an entitlement to free flow of cash at someone else's expense. But I think we as a society can do it anyway.

Don't worry. In spite of their protests, the capitalists won't find any particular set of rules so onerous that they lose interest in making money. And if they did, others would surely step forward to take their place. It'll just mean whoever's in the game will have to find different and more fair ways to make money. Nothing wrong with that.

Author's Note: If you got value from this post, please “Share” it.

This second part of a 3-part series was originally published August 9, 2013 at Open Salon, where I wrote under my own name, Kent Pitman.

The other articles in this series are:
Breaching the Social Contract (part 1)
The Overtime Loophole (part 3)

Tags (from Open Salon): profit sharing, profit, cooperative, co-op, coop, partner, duress, inequality of bargaining, bargaining, deficit, unemployment, employment, jobs, cycle of poverty, poverty, penalty, punishment, reward, success, failure, entrepreneurship, entrepreneur, wealthy, poor, rich, inequity, investment, living wage, minimum wage, reward, risk, startup, social contract, politics

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