by Callum Anderson
Living standards for millions of hardworking people across the UK remain squeezed. By the end of 2017, British workers’ pay packets were still £15 a week below their pre-financial crisis levels; the Resolution Foundation predicts that pay won’t fully recover until 2025.
At the same time, bosses of the FTSE 100 earn on average 94 times more than the average employee. In too many cases, these sometimes astronomical levels of pay bear no relation to either personal or company performance.
Indeed, the first Thursday of 2018 was known as Fat Cat Thursday – where the average FTSE 100 chief executive had already been paid what it would take the typical UK worker an entire year to earn.
The sheer magnitude of this income inequality should worry all in society. In an era of economic uncertainty and instability – characterised by stagnant wage growth, job insecurity and depressed levels of business investment – Labour must offer an ambitious package of genuinely bold economic reforms that promote an inclusive, collaborative brand of UK capitalism.
One important feature of this should be to promote the use of profit sharing.
Enshrining the principle of profit-sharing – whereby a company apportions a percentage of annual profits as a pool of money to be distributed among the workforce – into our economy would reinvigorate British workplaces by ensuring that a share of their company’s rewards are also passed onto all members of the workforce who helped generate success and not just management and shareholders.
Labour should embrace profit-sharing because it encapsulates the values and history of our movement: Workers, as participants in a scheme of cooperation that produces national income, must be able to receive a fair share of what they have helped to produce.
And besides, profit-sharing makes good economic sense for companies and workforces, alike.
Cross-country studies have shown that by tying all employees into the fortunes of their company, profit-sharing schemes raise worker productivity, increase worker retention and boost relations with management.
Such schemes could be implemented in a number of ways.
First, the next Labour government could, as happens in France, mandate certain companies – say those with over 500 employees and/or a turnover of £500 million a year – to share a proportion of their annual profits with their workforce.
It could also incentivise small and medium-sized enterprises to follow suit by offering a tax credit for companies equal to 10 per cent of the profits that they share with their workforce. Appropriate provisions could be put in place to ensure that companies did not use any profit share dividends to replace existing wages and benefits.
The benefits for the workforce could be locked-in by exempting profit-related pay from either income tax or national insurance contributions. This additional income would strengthen families and communities across the country by building financial resilience and raising consumer spending power.
While profit-sharing alone would not be the panacea to boosting workers’ pay, it would send a powerful signal that Labour is on the side of hardworking Britons and support the formation of a truly British common wealth.
Callum Anderson is a Labour activist. He tweets at @Cavlar_Anderson.
Tags: austerity, Callum Anderson, economy, profit, profit-sharing, SMEs
This is a little radical in a Corbynista environment where profit is a four letter word! Some of it might even be attractive to Theresa May – there are things she’d like to do if Brexit wasn’t all consuming.
However, I don’t have a problem with workers in a successful company benefiting.
There is something that does need considering – are we talking about one-offs or increases in salary. A one-off is fine but increases in salary are better.
Sounds like you want to dictate terms to business again here which i am personally not comfortable with. I have had 5 jobs with 5 separate employers over 30 years and have on occasion been rewarded when the company did well. I think most employers are reasonable people who have a vested interest in looking after their employees. I am not naive enough to think that there won’t be some unscrupulous employers out there though.
My bonus was linked to the profitability of the organisation but also based upon my own performance. This was to ensure those that deserved more by putting the extra effort in were rewarded accordingly. The “entitlement” culture breeds the wrong behaviours in the UK and has affected the outcomes for too many people who have little appetite for graft and demand a starting salary of £25k.
I also note that on one hand you want to smash the bonus culture for fat cats but at the same time introduce another bonus culture for non fat cats?
And for the record it was Tony Blair who said “nobody minds how rich the rich get, as long as the poor don’t get any poorer”. I’m not a huge fan of Blair but I think he had a point with this. Whilst I think salaries of 500k plus are ludicrous I am only interested in my earnings and ensuring I’m not poor.
Moving towars a co-operative model for business through ideas like shares for employess or “Workers on the Board” is an area where Labour could work alongside other Parties.
However, how does this article fit with the one below ?
This site seems to have a split personality.
Profit related pay existed back in the 1990s – it cost the Treasury a fortune and the Blair Labour Government killed it off as the benefits were questionable.
The problem is that the cash based profit sharing element becomes seen (in practical terms)as part of the individual employee’s remuneration package – it is expected and household expenditure is adjusted on that basis. In that case if the company makes a loss and there is no profit payout the employees will treat this as a reduction in salary with consequences for employee turnover, morale, industrial relations and wage negotiations (in other words it creates an employee issue exactly when the company – now making a loss – needs employee support).
At the same time the payout has little impact on employee motivation. For most employees the fact that they work harder and or more efficiently won’t have any consequence for the company’s bottom line. Correspondingly, if an employee does as little as possible at work, that is unlikely to prejudice the bottom line and the chance of payout. Executive cash and share bonus plans are used precisely because the executives are in better position to impact profit (or any other metric used to determine the executive’s entitlement to a payout) – and the one way bet inherent with share options has resulted in some adjustment to introduce a downside risk should the executive not deliver on performance.
Finally the prospect of tax relief on the payout stimulates the use of avoidance schemes whereby the profit distribution becomes a cost efficient substitute for increases in wages and salaries. Even if not structured as such, companies will use a profit payout as an answer to demands for increases in salary.
We already have at least two statutory all-employee share schemes (the Save As You Earn (‘SAYE’) Scheme and the Share Incentive Plan(‘SIP’)) where individual employees can acquire shares on a tax efficient basis. These are very common in listed companies and, indeed, they are very popular as they allow employees to share in the company’s increase in value over time and on a tax efficient basis – though the media tends to ignore these structures (possibly because they don’t understand them), in many companies employee participation rates are over 50%. Furthermore the shares acquired deliver dividends based on distributable profits like any other shares held by non-employees and achieve precisely the ‘profit share’ that you contemplate.
You might spend more time in considering changes to these structures to make them more user friendly for employees of unlisted companies- as the absence of a ready market for the shares can limit their value to employees – and other companies who do not qualify for participation (as there are detailed conditions which have to be satisfied for a company to use an SAYE Scheme or SIP). And of course to increase prticipation more generally.
But don’t forget – any tax efficiency means a surender of potential tax receipts of one kind or another. And Treasury will need some convincing that this is justified, particularly in current circumstances.
Its not that difficult to do.
1. Legislate that bonuses – either in cash or kind, must be awarded to all emplotyees on a pro-rata basis linke to their salary.
2. Pay rises are to be 5 equal across all employees – ie if the ordinary joe soap gets 1.5%, that all everyone above him gets, rightto the top.