Anti-Capitalist Sentiment (with some morality)

[Renton]

Hypothetical Situation

A large U.S. corporation employs thousands of workers, most of whom are around the 25th percentile income. Certainly below middle class. They can probably afford a frugal lifestyle but definitely aren't making enough to be able to save a large percentage of their incomes or have investment portfolios etc. Currently the compensation model of this company is an hourly wage dispensed bi-weekly. Let's say for the sake of argument that the average sub-management employee earns $10/hour, or about $20,000 annually for full time work.

Consider two scenarios:

Scenario A

The company offers an optional deal to each employee. They agree either to the current compensation arrangement OR a new one in which they are paid 80% in cash and 20% in equity. Good news and bad news though. Good news is that for their 20% salary investment they get 1.5 times the market value of the company. In other words a $10/hour wage pays $8 cash and $3 in equity. The bad news is that there's a clause in the agreement that says they cannot sell the equity for some period of time (say 6 months) unless they quit the company.

So as the employees who choose this offer continue to work, they build equity in the company, and will earn quarterly dividends if the company makes a profit, which they can either receive as cash or as equity, same deal as before. However, the value of their equity could also decrease if the company posts losses.

What percentage of employees would take the deal?


Scenario B

Everything is the same as Scenario A, with the following exceptions. Instead of offering a 20% cut in pay that is replaced by the profit sharing / equity program, the employees are allowed to choose between a straight cash raise to 120% of their previous wage, or the same deal as above with 100% of their original wage + 20% equity. Again, they get 1.5 times the value of their investment.

What percentage of employees would choose the equity program over the cash raise?


Bonus question (for either scenario): How much (if at all) do you think you would you need to sweeten the equity deal for a majority of the employees to choose it over the alternative?

[JKDS]

Scenario A

What percentage of employees would take the deal?

Close to none. The cost of living is simply too high, and a $2/hr cut in pay for 6 months would put most of them in the street.

Scenario B

What percentage of employees would choose the equity program over the cash raise?

A lot more would take the deal, but I think most still take the straight up cash raise. Its much easier to understand a 20% raise than it is to understand getting an equity thing and figuring out what to do with it.

Bonus question (for either scenario): How much (if at all) do you think you would you need to sweeten the equity deal for a majority of the employees to choose it over the alternative?

Thats really neat. I think the biggest hurdle is people's need for more money now though. If there was an option for say, 110% pay + 10% equity, I think most would take that over the 100% + 20%. People want to feel like they made the right choice, and seeing the increase in actual pay accomplishes that very well.