Membership Growth Incentive

Compensation Matching

The following proposal attempts to equalize the compensation for founding members of a cooperative and members who join later. It also provides a natural incentive for membership growth.

Current methods provide additional compensation for founding members utilizing a post startup bonus based on the wage differential between the compensation during startup and the compensation after profitability. One problem with this method is that it fails to account for the investment loss since it is based on gross salary/wage compensation.

There is another way to equalize the compensation of founding members and members who join later. Instead of giving the founding members a bonus, reduce the initial compensation of each new member to simulate going through the startup process. Basically reduce the compensation of each new member for a period equal to the startup period. This cannot simulate an investment loss since those cannot occur in a profitable cooperative, but the founders are already compensated for their net loss (salary/wage – investment loss) through a future claim on profits. Recall that founders of a worker cooperative are not only not being paid during the startup period, it is costing them money to work (to the extent there are losses).

The simplest implementation would be to reduce the new members compensation over a time equal to the startup period. The compensation of the new members could be set as low as zero, replicating the founders compensation. After that period they would be compensated at the going rate with the usual patronage distribution members receive.

One way to implement this is to have the reduced compensation take place over a new member’s trial period before they are granted membership to the cooperative. When they are voted in as a new member they would begin receiving full compensation plus patronage. If they were not voted in they would get a bonus bring their compensation during the trial period up to market rates.

There are some advantages with the compensation matching model. First, it would eliminate the time delay that founding members face under the wage differential model where the wage bonus comes later in time but new members get high wages immediately. With the compensation matching model each member would receive reduced compensation initially when they join.

The compensation matching model also provides a natural incentive for membership growth. Existing members effectively get a bonus for each new member that is added. The size of the bonus is determined by the number of new members added. The bonus is also finite in duration as it last only as for a temporary period for each new member. Further, the incentives for membership growth remain in place regardless of the size of the coop, though it does decline in magnitude with the total number of coop members. This would help overcome the problem of worker cooperatives being reluctant to expand membership.

The membership growth incentive is generated by switching the compensation scheme from a one time founder bonus, to reduced new member compensation that happens for every new member.

The compensation matching scheme is likely to lower membership turnover within a cooperative. Since the financial compensation increases after the initial period it will make more sense to join a worker cooperative for an extended period of time. The lower turnover would reduce training costs.