In the startup phase a of a worker cooperative, losses are often put into negative equity account or the collective reserve account. The members internal capital accounts are held fixed over this time. When future profits arise they, first go to eliminate the negative balance before any profits are paid out to the members. The problem is this hides the losses from the founding members. By putting the losses into a negative equity account or the collective reserve account, the founding members investments are held on the books at a fixed value. This is the central problem for worker cooperative statups.

The financing for startups typically comes from some combination of member investments, outside capital, and donations. If there are donations they may cover some of the startup losses. Aside from the donations, the founding members should cover the startup losses themselves.

This is the unmentionable part about worker ownership. The profits and losses in worker cooperatives are often not treated consistently. To the extent that there is an asymmetry where losses are ignored but profits are carefully distributed, worker cooperatives will be easy to disregard.

Compensation and Patronage

Founding members typically have lower wages during the startup period and no patronage (profit distributions) since the cooperative is losing money. This creates an incentive to join established coops, rather than start one. A person who joins a profitable worker cooperative will often have higher compensation than the founding members as well as a share of the profits.

One way this is addressed by some worker coops is to utilize the total compensation levels (wages plus patronage) after the startup period. Then a wage bonus paid on the difference in wages during startup and the total compensation level afterwards. The bonus is paid for an equal period of time that the member worked during startup.

Example:  Startup wages are $15/hour for 3 years until coop is profitable. Total member compensation after startup period = $20/hour. Then, pay founding members extra $5/hour (=$20-$15) for 3 years. The members would have to stay with the cooperative to receive the wage bonus.

This helps mitigate the problem of founding cooperative members being disadvantaged. It shifts the startup costs the later members, which pushes them in the correct direction. But misidentifies the root cause of the disadvantage founding members face which suffering a loss on their investment, not reduced compensation.