This is theft

Companies will be forced to share their profits with employees under plans being considered by Ed Miliband’s Labour party. Any firm with more than 50 staff members would be obliged to set up a profit-sharing scheme, with workers being handed a cash sum based on their employers’ financial position.

That profit belongs to the shareholders.

There’s many excellent reasons why they might decide to share that with the workers. But to force them to do so is simply theft.

75 thoughts on “This is theft”

  1. Compulsion removes only some element of market forces and it does it to both sides.

    Successful businesses would have lower unit wage rates and an employment cost base that flexed with profits.

    This is not all bad news (unless you are a employee).

  2. Sounds like employees would end up with City-style packages – low basic salary and a variable & highly volatile bonus element.

    Sounds very neoliberal to me.

  3. If this came about from an income tax/NI concession, it wouldn’t sound compulsive.

    I’d expect Ed to have some sort of underwriting scheme so that if there weren’t profits, the taxpayer would fork out, though.

  4. Julia

    That is the strategy of Labour and PSOE in Spain.

    Promise something to every identifiable group. They have no policies other than we give, give and give.

    With the crisis, the Guardian hyping ‘inequality’ and an ever-growing benefits class it is the only strstegy that can work for them. They ain’t daft. Ignorant and blind to their own failings, yes but daft, no.

    In Andalucia, governed by the PSOE for over 30 years since the first democratic elections we have:
    + institutionalised corruption based on the gross organised misuse of European funds with the entire government under suspicion and hundreds of people pending charges: Agricultural programmes, training funds, industry restructuring funds all shared among the faithful to buy loyalty
    + 30% unemployment
    + 50% youth unemployment

    But it doesn’t matter, they talk of rooting out corruption and giving more to ease ‘inequality’.

    They have created a true clientele benefits class that even with the current political dissatisfaction will see them to another period in power.

    Could work for the 2 kitchens bacon eater.

  5. ‘But to force them to do so is simply theft’ – don’t think it’s any more theft than a rise in corporate tax rate would be. Shareholders invest subject to political risk, and even granny investors know this. Companies may benefit from lower wage pressure if this happens.

    One thing that stinks is the minimum employee headcount. Doesn’t France have a whole bunch of regs that only kick in once so many workers are employed, and as a consequence, a very large number of small businesses that deliberately stick below the headcount threshold instead of expanding? This seems a particularly stupid way to mess up economic growth, by reducing the incentives for new and innovative companies to launch a serious challenge on stale incumbents.

  6. Yup, a French company going above 50 employees must set up a works council, pay extra NIC, change its method of accounting and obey a host of pettyfogging rules. Most consider it not worth it, which is why so many are stuck at 49 employees. And France has 12% unemployment.

  7. There is evidence suggesting that mandatory profit-sharing schemes increase productivity. In 2012, the most recent year available for comparison purposes, France, which has a mandatory profit-sharing law in place, had the second-highest level of productivity per hour worked in the G7, more than 30% higher than the UK, which is languishing in sixth place.

    It’s easy to boost productivity-per-working-hour when your least skilled people don’t work..

    French unemployment rate: 10.2%

    British unemployment rate: 5.8%

    And the ‘party of the working classes’ wants us to be more like France? Sacre bleu! Does that mean we get to chop their heads off when Justine Milliband says let the plebs eat cake in their second kitchens?

  8. Is there any equivalent in UK regs? I’m sure there are some business which deliberately keep below the VAT threshold but that’s a bit different.

  9. Cue lots of work for lawyers & accountants devising schemes to work around this. For example split the company into two halves, each with 49 employees. Or split it into a managers’ company which makes huge profits and a workers’ company which barely breaks even.

    Is there any question to which Millipede doesn’t have the knee-jerk answer of more regulation?

  10. If the company subsequently makes a loss will they have to pay money to it or its creditors ?

    This is the problem with idiot profit sharing schemes. The lefties want the benefits of the risk taking – how many businesses go broke ? – with none of the down sides.

  11. Paul,

    “This is the problem with idiot profit sharing schemes. The lefties want the benefits of the risk taking – how many businesses go broke ? – with none of the down sides.”

    I’ve got a leftyish mate who had a business idea. He knows I run a business and started talking to me about it. How I’d buy the servers, build a load of the software, and then we’d run it 50/50. I had one of those embarassing *long pause* moments and thought about pointing him at the story of The Little Red Hen, but in the end just left it at “I’ll think about it”.

  12. And the wages belong to the workers but the government takes 50% of that (a vastly higher chunk than it takes from any capital return), much of it to redistribute to the “less fortunate” rather than actually spend. Is that likewise theft?

  13. “And the wages belong to the workers but the government takes 50% of that (a vastly higher chunk than it takes from any capital return), much of it to redistribute to the “less fortunate” rather than actually spend. Is that likewise theft?”

    Yes. Next question?

    If I was a worker in a company that had just over 50 employees I’d be a bit worried by Ed’s generosity, it might just lose me my job. Indeed this could be the ultimate boost to outsourcing – why employ cleaners, maintenance men, canteen staff, even HR staff? Just get outside contractors in. With a bit of ingenuity a company employing hundreds could whittle that down to only employing under 50 of the actual profit makers.

  14. bloke (not) in spain

    Sorry, but why’s everyone objecting to this scheme?
    The pie of any business is of a fixed size, so it depends how you cut the slices. The profits slice is fixed because that’s the level of profits needed to attract investment to enable the business to exist in the first place. The prices the business charges it’s customers are fixed because those are the prices needed to attract customers. The input in the way of raw materials, bought in services etc are fixed because they are based on the market prices.
    So the only slice of the pie left (ignoring taxes) is labour costs & it doesn’t matter a damn whether your paying them out as wages, wages + % of profit, or all as % of profit, it’s still the same size slice.
    Maybe profit sharing would incentivise workers to work more effectively & increase profitability. But where’s the downside?

  15. Never mind the merits of the scheme: it’ll be an admin nightmare.

    Anyone remember PRP? Lovely idea in practice, but as you had to ensure that you paid the amount due *to the penny*, it was virtually impossible to get it right. Companies didn’t have the expertise to do it right, and the firms that had the expertise had to charge so much to do the workings that they either lost money or didn’t get the work in the first place.

    A cynical viewer might think it was a beautiful bait-and-switch by the Treasury: here’s a tax incentive for you… ha ha, you got it wrong, let’s have the tax anyway plus penalties. Next!

    If this comes in, I forecast:
    – My firm makes it clear that responsibility for the calculations is with the client
    – We spend ages of unpaid time helping them out anyway
    – We have a lot of PAYE audits finding errors because people didn’t ask for help
    – The insurers don’t pay out for the cost of the enquiries because the client was at fault (cf NMW)

    Clients lose cash and management time, we lose chargeable time and client relationships, employees get disgruntled because their pay’s wrong in ways they don’t understand, HMRC divert resources to enforcing it, Treasury gets a small additional income from penalties.

  16. MBE:

    “One thing that stinks is the minimum employee headcount.”

    Liberty: 1. freedom from arbitrary or despotic government or control.

    The proposal is tyranny, simply because it is arbitrary. Unless they can explain what is magic about 50, they are tyrants. Why not 49 or 51?

    As long as they are being arbitrary, there is no reason why they can’t change the standard to 40 a year later.

    Labor is a commodity. It’s price is set by the marketplace. Government interference will end badly.

  17. Sorry to be a pendant, but theft with the threat of force is actually robbery.

    A pass that was sold a long time ago.

  18. So Much for Subtlety

    bloke (not) in spain – “The pie of any business is of a fixed size, so it depends how you cut the slices. …. it doesn’t matter a damn whether your paying them out as wages, wages + % of profit, or all as % of profit, it’s still the same size slice.”

    I am in the odd position of agreeing with b(n)is. Wages are determined by the market. If you give everyone a share of the profit, it follows the rest of their compensation will go down.

    Can I point out one great advantage – flexibility. When there is an economic downturn, workers need to be paid less. This is why we put up with low levels of inflation and the currency floats. It is so that in a downturn we can cut workers’ wages in a painless way. They don’t notice. But this is even better. What you have is that a proportion of their wages are dependent on profits. If the company hits hard times, their wages go down. If the economy as a whole most people’s wages will go down. It is a neat little corrective.

    And if we want to do it the nice way, we can take a page out of Cap’t Bob’s book. It looked like Robert Maxwell was stealing his workers’ pensions. But as it turns out, he was setting up the sort of profit sharing scheme Miliband would like – their pensions got invested in Maxwell’s companies. Thus they got a share of the profits. Or would have had, you know, if there were any. What is not to like?

  19. Bloke in North Dorset

    Doesn’t this put banks in strange position?

    On the one hand its illegal or at least frowned upon to pay a bonus based on profits but then it will be illegal not to pay a bonus based on profits.

  20. b(n)is

    Yes in general you are correct – the effect of this in the medium term will be to reduce the fixed element of the wage bill and increase the variable element. In the short run, it would probably eat into profits – because rearranging salaries downwards would be difficult. Nominal wages tend to be sticky.

    Unlike Tim I dont think of it as theft (or robbery), merely another example of government interference which will have some substantial costs, no positive effect and just reinforces the view that Ed miliband really is an economically illiterate twat.

  21. “Manifesto promises are not subject to legitimate expectations..”

    District judge Paul Gamba (Brighton) Bower v HMG (2008)

  22. bloke (not) in spain

    “the effect of this in the medium term will be to reduce the fixed element of the wage bill and increase the variable element. In the short run, it would probably eat into profits – because rearranging salaries downwards would be difficult.”

    Great isn’t it? Proportionally hits companies with less productive labour. Clears them out of the way & opens the path for for more efficient businesses. To all our benefit. Some transient costs as inefficient workers get thrown on the unemployed heap. Inefficient businesses go to the wall. All in all, probably worth paying.
    Somehow I don’t think this is quite what Red Ed had in mind, though…

  23. It is not so much theft Tim but it is ‘pecuniary duress’

    In contract law, a defense that can be used by a party to argue against the formation of a binding contract between two parties. To prove economic duress (‘pecuniary duress’, a party must show that

    (1) a continuous contract exists between the plaintiff and the defendant;

    (2) the defendant threatens to terminate the preexisting contract; and

    (3) the plaintiff under this duress accepts the defendant’s terms and enters the contract.

  24. “And the wages belong to the workers but the government takes 50% of that”
    Here in France its 62.5%. So the unskilled cannot afford to work.
    Plus there are council taxes and VAT.

  25. Shared with the workers how? Equally? Pro-rata based on fixed salary? Do the managers, including the CEO, count?

    I suspect the prime beneficiaries of this will be those who are mates with whoever is doing the allocating.

  26. If this became law then would Ed Miliband also support reducing the scope of limited liability so that worker shareholders had to bear losses and costs of damages involving third parties. If he wants employees to share profits then they also must share downside risks. A person who believes in fairness would say yes to that point.

    There are good reasons for profit sharing in certain entities. John Lewis works on that basis. But the key is to understand that incentives work both ways.

  27. I just hope this poorly assembled android does not get to make policy. If he does,”To the lifeboats, everyone!”

  28. I was under the impression that New Labour, in 1997, inherited a tax regime which offered tax relief for profit related pay schemes which met conditions specified by a framework set out in legislation dating from the late 1980s. The motivation for setting up the scheme had been the idea that PRP could act as a shock absorber across the business cycle – minimising job losses and waste of human capital in economic downturns. Once Gordon Brown abolished boom and bust, this benefit disappeared and so he very sensibly scrapped it as a worthless tax avoidance scheme.

  29. Bloke in North Dorset

    Its going to be fun watching heads explode the first time a company invests heavily in technology in a year so as to avoid/reduce profits and then uses that technology to lay off workers and increase future profits.

  30. @b(n)is: “Maybe profit sharing would incentivise workers to work more effectively & increase profitability. But where’s the downside?”

    I’m pretty sure that Miliband is looking at the John Lewis scheme where the annual bonus is typically a months wage (say 10% of annual salary). Employees earn a living wage and the bonus is a bonus; a payment which is extra to the wage.

    Perhaps a bonus might incentivise some workers. Or perhaps some politicians misunderstand the success of John Lewis. The Partnership is successful because of and in spite of its management structure.

    John Timpson runs a different company that looks after its employees and contributes to society. Baxendale Ownership suggests ways to create employee ownership. There are many ways to skin a cat.

  31. Let’s do the standard political exercise of considering a proposed policy by imagining its opposite to see if it still makes sense. The logical corollary of this is that if the company makes a loss then the workers are forced to dip into their own pockets to provide a share of the loss equal to the share of the profit they would have taken. Does this make sense? Does it bollocks.

  32. Can imagine a period of reduced pay rises to cover the fact there’s profit share. Then a sneaky boss will start trying to expand the business. Perhaps 5 years of annual losses would persuade the workers they are better off with a straight wage and not profit share?
    What happens at John Lewis when they make a loss?

  33. Incentive schemes are a great idea, which is why so many companies have them (including Amazon).

    However, they’re a great idea only if they’re targeted properly, and a share in the profits seems entirely vague to me. Neither will there be a loss-sharing element (no doubt to the great relief of Stemcor employees).

    As for the admin and the anomalies this would create … well.

  34. b(n)is,

    “Maybe profit sharing would incentivise workers to work more effectively & increase profitability.”

    I’m very sceptical. I’ve worked in a load of places and not seen much evidence of it affecting people’s perspective. Everyone makes too little difference to affect the outcome. You can work your ass off, and if none of the other 999 people in the company do, you don’t get the bonus and your hard work was wasted. I’ve worked in a couple of places with profit share, and very few people go the extra mile.

    The only time I’ve seen it work was project completion bonuses for a team of 4 people (including me). No-one goofs around because everyone not only wants the bonus, but also doesn’t want to have to live with people who didn’t get the bonus because of their goofing around. And when it’s 4 people, everyone notices.

  35. The only time I’ve seen it work was project completion bonuses for a team of 4 people (including me). No-one goofs around because everyone not only wants the bonus, but also doesn’t want to have to live with people who didn’t get the bonus because of their goofing around. And when it’s 4 people, everyone notices.

    Which is just another manifestation of the Bjorn’s Beer Effect.

  36. @Flatcap Army
    Sadly very few people do this.
    “Let’s do the standard political exercise of considering a proposed policy by imagining its opposite to see if it still makes sense.”

  37. @The Stigler: “The only time I’ve seen it work was project completion bonuses for a team of 4 people (including me). No-one goofs around because everyone not only wants the bonus, but also doesn’t want to have to live with people who didn’t get the bonus because of their goofing around. And when it’s 4 people, everyone notices.”

    I was once the goofer-off on a four person project. I understood the project papers better than the three others and I comprehended work progress better than them. But they were very active, not necessarily more productive than my idleness. ‘cos I was the obvious goofer-off, they didn’t believe me when I said, “that’s wrong”.

    But I, the slacker, was right.

  38. @ b(n)is
    The National Minimum Wage means that Ed Millionaireband’s scheme is a way of confiscating (it does not count as theft solely because he will be making the law) some of the profits that should belong to shareholders.
    In partnerships all partners share in the risks and benefits both upside and downside but employees will only get the upside that previously belonged to shareholders and the rare extreme downside of losing their jobs when the firm goes bust as a result of “two kitchens Ed”‘s scheme.
    Employees hired in the future will face much lower basic wages if the assumption that a minimum level of returns to shareholders is required even after they have coughed up the money (which I do not believe – once they have coughed up they are at the mercy of the government: only new shareholders will be able to demand higher treturns).
    This will work to defeat IDS’ aim of making it easier for the poor to earn a living since it will reduce basic wages and – for as long as travelling costs to worek are not tax-deductible – increase the number of those who are worse off in work). A win-win scenario for Labour – fewer workers and more dependent upon the state so voting Labour, while promoting the politics of envy and penalising savers.

  39. “for as long as travelling costs to worek are not tax-deductible”

    Something which is pretty standard on the Continong, and is scandalous that it is not the case in the UK.

  40. @abacab: “Something which is pretty standard on the Continong, and is scandalous that it is not the case in the UK.”

    For which other middle class privileges are the plebs expected to pay?

  41. bloke (not) in spain

    ~ @abacab: “Something which is pretty standard on the Continong, and is scandalous that it is not the case in the UK.”

    For which other middle class privileges are the plebs expected to pay? ~

    My feelings, Mr Charlieman, when I watched the outcome of subsidising BR to provide commuter services. Broadly speaking, the higher the wage the further out into the leafy commuter belt their recipient lived. Resulting in the cleaner walking to the City from Lambeth & the senior partner training in from Norwich.
    That your fare to work is an expense you find hard to meet, Mr abacab should provide an excellent guidance on where you should choose to live or work. But not be Mr Charlieman’s burden to subsidise through his taxes.

  42. Travel to a daily place of work is not a tax deductible expense.

    Mr Charlieman may well subsidise some people’s travel to work through the subsidy to public transport, especially around Ian B’s money vortex but it ain’t through a direct tax benefit.

    (coughs) say’s the guy whose office is closer to his bedroom than his loo is.

  43. Betjeman’s “Metro-Land” programme talked about people who payed to use the railway to go to work. Metro-Land dwellers lived outside the city, and they spent a little bit in time and wages to get to work. They had gardens and countryside as compensation.

    Betjeman was a sceptic. I doubt that Metro-Land exists in the form that Betjeman tried to understand.

  44. I am *not* worried about the middle classes – I am talking (for those who did not notice or chose not to) about the poor who are worse in work than out of it because the tax-and-benefits clawback is over 80%, sometimes over 100%, of income when they get a job. IDS wants to reduce this to 70% – it should be cut to 50%, but with an inherited budget deficit of £150 billion young Gideon couldn’t stomach it.
    Ed Millionaireband wants to keep millions dependent upon the state – I want them to be given a chance to earn a living. Of course the elimination of the housing crisis would be a useful side-effect if there wasn’t a million people locked into out-of-work benefits because they couldn’t afford to take a job and a million immigrants coming here to take those jobs. But that is just a side-effect. Being put on the scrap-heap because you are deemed to be worth more not working is pretty horrible.

  45. So Much for Subtlety

    Flatcap Army – “The logical corollary of this is that if the company makes a loss then the workers are forced to dip into their own pockets to provide a share of the loss equal to the share of the profit they would have taken. Does this make sense? Does it bollocks.”

    It makes sense to me. Let me again suggest Ed implement this via my Cap’t Bob scheme where companies to take their employees’ pension money and invest it in their own company. It worked for Robert Maxwell. At least until it didn’t. So employees get a share of the profits just as little Eddie wants. But when the company does poorly, their pensions reduce in value too.

    What is not to like? I think Eddie is on to something here.

    Strikes would go down too I bet.

  46. “Employers pay what they have to pay to attract and retain people who can do what they want done.” – GC

    Labor tends to get paid what labor is worth.

    Forcing companies to share their profits with employees, if it results in paying labor more than they are worth, will necessarily result in corrective actions by business. More jobs move to India, etc. The marketplace will NOT just accept it.

  47. Edward Lud
    March 15, 2015 at 12:20 pm

    Sorry to be a pendant, but theft with the threat of force is actually robbery.

    ==========================

    PENDANT. 1: something suspended: as . a: an ornament (as on a necklace) allowed to hang free . b: an electrical fixture suspended from the ceiling

    So, Mr. Lud, are you an ornament or an electrical fixture ???

  48. @So Much for Subtlety: “It makes sense to me.”

    Of course it makes sense to you. You yack with people who are bonkers.

  49. @Gamecock.. The intrusive “n” in “pedant” is a long-running “in joke” amongst TW’s old lags.

  50. I hope that SMfS is being sarcastic with the suggestion that “strikes would go down”… I remember “the good old days” at British Leyland after they, at the unions’ promptings, introduced a profit-related bonus scheme. The company made a loss, the bonus wasn’t paid, the unions called a strike until the bonus was paid…

    I can imagine something similar with Ed’s scheme, all fine until after a bad year the company pays a reduced, or no, bonus. The employees, having become used to a certain level of remuneration, don’t take happily to this… Then what?

  51. “The marketplace will NOT just accept it.”

    I don’t think he actually means it. What he’s trying to say, is “could you vote for me please?”

    Our Glorious Leaders are all very bright young chaps, and have an army of other bright young chaps (of both sexes) advising them. If they took their ignorant eyes of the marginal seat polling data for two seconds they might come up with something coherent.

    We can look forward to other Great Ideas in the coming months, all of which will be either illegal, impossible, ruinously expensive, or all three.

    The “Big Society” was not, after all, the low point.

  52. Perhaps a bonus might incentivise some workers.

    The last company I worked for in the UK would pay us a bonus most years, typically a couple of thousand pounds. They had to pay about another 250 to Gordon Brown in NI in order to pay me that, then I paid about another 850 to Gordon Brown in tax and NI, then, if I bought something with the remaining 1150, I’d probably have to pay about another 200 to Gordon Brown in VAT.

    You need a pretty big bonus to incentivize workers when two thirds of it goes to the government.

  53. So Much for Subtlety

    Charlieman – “Of course it makes sense to you. You yack with people who are bonkers.”

    That is not fair. I haven’t talked to you for ages. Mostly BiG, Ironman, and IanB.

    Pogo – “I hope that SMfS is being sarcastic with the suggestion that “strikes would go down”… I remember “the good old days” at British Leyland after they, at the unions’ promptings, introduced a profit-related bonus scheme. The company made a loss, the bonus wasn’t paid, the unions called a strike until the bonus was paid…”

    Well yes. I was. On many levels. But you have not understood the joys of my Cap’t Bob scheme. British Leyland workers got a bonus as a type of wage. I am suggesting Eddie might want to take all their retirement funds and buy shares in their companies.

    You see the subtle difference?

    They can still strike. But how well off would British Leyland workers be today if their pensions had been invested in BL?

    “I can imagine something similar with Ed’s scheme, all fine until after a bad year the company pays a reduced, or no, bonus. The employees, having become used to a certain level of remuneration, don’t take happily to this… Then what?”

    When times are tough, wages go down. This is inevitable and necessary. Around here people usually support that through mild levels of inflation – 5% inflation a year or whatever the Bank of England is promising allows you to cut workers’ wages by 5% a year if you need to. Or appear to be a nice guy by giving them a 5% rise. If not through inflation then through devaluation. If the currency drops, we all get a pay cut.

    I don’t like either method. I don’t approve of debasing the currency because the government and the management do not have the balls to tell people honestly what needs to be done. But an end of year bonus works as well. Without hitting retirees and the like. If they get a 13th month of wages, taken out of their other twelve, that is conditional on economic performance, then if times are tough, their wages can be cut without anyone being fired.

  54. Re traveling expenses… back when I was 19, I signed on the dole for 6 weeks (it was the only time I’ve ever done so, after an employer went bump).
    I got a modest amount of cash (~£50 a week iirc). All fair enough.
    I got offered a little bit work – an hour or so a morning, cleaning a beach cafe about 5 miles from home (I still lived with my parents). £5 an hour.

    I had a car, an old banger, but sufficient to get me from a to b (this was back in the era when car insurance for the youth was rather cheaper than it is these days).

    So I toddle off to the job centre and tell them the good news… I’ve got some work, earning about £30 a week. Oh they say, we’ll cut your job seekers allowance but that amount, £ for £.

    So then I was in the happy position of receiving the same total amount of cash as before, but I’m now having to do 6 hours work for it, and needing put petrol in the car to do 60 miles a week (which in the aforementioned banger was £10 or so a week).

    From this I concluded the best thing was to claim the work in question was short lived, and then pocket the resultant cash…

    Quite how anyone could devise such a stupid system is quite beyond me.

    These days, I spend more on diesel a month than on my mortgage, having had to buy a house a long way from work as I can’t afford anything nearer. Some of our lads at work have company vans they take home (that is tax deductible for work), but my commute being in my car, I have to pay for it out of my taxed earnings. Theving government swine…

    (Of course rail based commuters almost everywhere get massive public subsidy, it’s just drivers they hate, particularly working class ones who can only afford old and fairly inefficient cars)

  55. @So Much for Subtlety: “But how well off would British Leyland workers be today if their pensions had been invested in BL?”

    SMFS is fucking clueless about Birmingham and Coventry. Fucking clueless.

  56. The reason why commuting costs are typically deductable on the continent is that they are a cost of going to work. And if we say that income tax is in some way a corollary to corporation tax, a cost of making the “profit” that an individual makes.

    Here in CH, everyone can deduct the cost of a GA, which is the flat-rate train subscription which enables you to use the whole system for less than a Reading-Paddington season ticket. You don’t have to have a GA, it just simplifies things to let everyone deduct that amount. You can only deduct milage if the difference with public transport is more than an hour.

    For someone on average wage, how much pre-tax salary goes on getting to work? In my sister’s case, it was a vast quantity.

    For me, file this under “stuff the Continentals get right”.

  57. bloke (not) in spain
    March 15, 2015 at 11:59 am
    Maybe profit sharing would incentivise workers to work more effectively & increase profitability. But where’s the downside?

    I am, as usual, coming into this late but the answer to your question is another question – if there was no downside, then why would it need to be mandated?

    If profit-sharing with employees is such a good idea then you would have to assume that the vast majority of business are simply leaving money on the table for . . . what? ideological reasons? Because they’re all too stupid to figure out this efficiency increase?

    I’m willing to give the people who are putting their money on the line the benefit of the doubt that they know what they’re doing – and if they don’t, they won’t be doing it for long.

  58. bloke (not) in spain

    “you would have to assume that the vast majority of business are simply leaving money on the table for . . . what?”

    But there’s no money left on the table. As I pointed out, above, the slice of the pie available for wages is fixed. By all the other slices being fixed by market pressures. All we’re discussing is how this slice is distributed. If the slice of the pie doesn’t change then there can’t be any downsides, can there?

  59. bloke (not) in spain

    OK. And now I’ll confound my own argument.
    A downside could be labour benefiting from profit sharing could be more incentivised to push for profits, would have been allocated to reinvestment in the business, to be available to distribute to workers/shareholders. It’s a pressure that’s already there but do workers think more short-term than shareholders?

  60. “As I pointed out, above, the slice of the pie available for wages is fixed.”

    In the long term, maybe. In the short term, definitely not. In the short term its the shareholders who would lose out as they are the only ‘person’ the profit would be going to otherwise. If the company is making X profit after tax (incidentally would this be profit share after tax, or profit share before tax, and would the profit share be an allowable expense if it was before tax?) and thats all going to the shareholders as dividends, and Ed introduces his profit share scheme, where else is the cash coming from to pay it other than the dividends, which would have to be reduced?

  61. BiW,

    “Which is just another manifestation of the Bjorn’s Beer Effect.”

    Yes, absolutely. There’s a few others – one reason that teachers generally do a good job is that they are subject to BBE. The people in the LEA aren’t.

  62. @b(n)is “It’s a pressure that’s already there but do workers think more short-term than shareholders?”

    I’d think so. I generally aim to stay in a job for 2 years – so I’d like the bonuses paid in those years to be as high as possible. I don’t much care what happens after I’ve left the company.

  63. bloke (not) in spain

    Then, RA, you think longer term than a shareholder. Who looks only to the next dividend. It’s prospective shareholders who are interested in the future of the company. Hence share prices.

  64. I’m not sure I follow the logic. If a company pays dividends then the act of doing so should reduce the value of the company (as they will have less cash on hand) and so reduce the value of the shares.

    Big dividends are all well and good, but if they drop the share price, then what’s the point? The shareholder should be interested in what keeps the total value of his/her shareholding up, which would normally be a healthy attitude to long-term planning.

    Apologies if this seems like a stupid question – I don’t think I’d make a good economist…

  65. Depends on whether you’re holding the shares to sell them later at a higher price, or whether you’re holding them for the dividend, innit?

  66. Wow. Either he has absolutely no understanding of economics, or he really doesn’t want anyone in the UK to have a job, because nobody would ever be willing to run a business if he had to give his profits away.

  67. bloke (not) in spain

    But there’s no money left on the table. As I pointed out, above, the slice of the pie available for wages is fixed . . .

    If the slice of the pie doesn’t change then there can’t be any downsides, can there?

    So – there’s no *upside* (to the owners – the people who’ve put their money at risk) and the downside is (at a minimum) the costs of changing your employee compensation plan.

  68. “I’ve got a leftyish mate who had a business idea. He knows I run a business and started talking to me about it. How I’d buy the servers, build a load of the software, and then we’d run it 50/50. I had one of those embarassing *long pause* moments and thought about pointing him at the story of The Little Red Hen, but in the end just left it at “I’ll think about it”

    One of the funniest things I saw was on Dragon’s Den. There was a couple of public sector employees (one of whom was a climate change manager) with an idea. Actually it was not a bad idea.

    The problem started over the negotiations. Their approach was ; well you invest your money in our idea, we will carry on working at our jobs. If it’s a success, then we will leave our jobs and invest in it and run it”.

    No takers. How none of them didn’t laugh was beyond me.

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