Co-operatives and executive pay

There have been debates on how much to pay managers and wider staff in the co-operative sector right from the early days.

As perhaps with any issue of economic fairness, there have tended to be two schools of thought. The first is that there might be a universal standard of fairness, that a co-operative can embrace. The second is that what matters is ‘process fairness’, in which executive pay is considered openly and appropriately by members, reflecting the democratic governance model of member-owned coops.

An example of a universal approach may be, for example, that you get out what you put in. The training co-op Zebra Collective has a flat management and pay structure, and pay is decided according to how much training and how much administration staff members do. Or it may be an egalitarian principle of equal pay. At SUMA, the wholefood co-operative, all staff are paid an equal salary and share from success in an equal way through dividends. Others, like Co-opportunity, have equal basic pay but pay a large divided based on a series of weighted factors which differ between individuals.

With the Spanish worker co-operative Mondragon, winner recently of an FT global business award, there has long been a ratio set between top and bottom pay. The original ratio was up to 1:6 and was chosen as a way of encouraging managers to raise pay if they needed a pay rise themselves. In the 1980s, the ratio grew to 1:15 – as too many managers were being lured away by higher pay elsewhere. Fairness, after all, in a competitive market sits alongside the test of effectiveness. Alongside this, pay at Mondragon is set according to measures which include productivity and absenteeism and measures of how well staff members get on with other people (constituting 20 per cent of the pay decision).

There tends to be something of a difference, though, between worker-owned co-operatives on the one hand and consumer-owned and enterprise-owned co-operatives on the other. The member benefit for one is about fulfilling work, including earnings, while for the other it is about the gains of trade – and executive pay, including valuing the role of executive leadership, is part of a primarily commercial set of judgements on how to achieve that.

So, there is no single right answer. What matters is that there is an open conversation with members on these issues – executives are paid with members’ money and what is paid to them to get the job done, whether too much or too little, is ultimately down to members. These are not issues hidden away from sight – in fact, there has been healthy and lively debate within the member governance of The Co-operative Group in recent years around issues of pay and co-operative values, from exploring the living wage through to details in the accounts on who among senior staff was paid what when they left. Debate like this can be a sign of strength.

But when you run a democratic model, process matters. The last period has seen what from the outside has sometimes looked like a trickle of media comment that reflects one group of decision-makers criticising another and vice-versa. That is no way to operate, let alone co-operate.

In Mondragon Co-operative, salaries are called anticipos, because they are intended to be seen as advances on future wealth creation. That must be right. Rather than talk about executive pay in the distorted frame given to us by mainstream business, of ‘compensation’ and ‘entitlements’, the focus should be on what will deliver success for members, in line with their values, over time.

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8 thoughts on “Co-operatives and executive pay

  1. The problem is even if the coop group did pay their lowest earning workers a “fair wage of £8.50 per hour is 226 times higher. The fact is they didnt consult members properly. Frighteningly shocking and for me an example of how the retail side isn’t as in touch as they claim. I wonder who wrote the paper that explains how if executives are awarded equal high end, no matter what you get this bonus, pay then they perform better, because I could do better if I was still a drinker! Let me guess it was a manager or someone that was expecting to become one, lol. I have som much more to say on the matter, essentially since this article appeared a lot of grassroots members are refusing to shop in coop or thinking of cancelling memberships, etc.

  2. Ed, what most astonishes me is that the Coop has resisted a government bail-out. I’ve heard you refer to this as a ‘cost to the taxpayer,’ but QE is essentially keyboard credit. There is no direct cost to anyone. The central bank simply creates money by fiat. Bond depreciation might create costs, but QE doesn’t appear as part of the deficit at all.
    The financial sharpies wouldn’t have hesitated for a second. They would have accepted the bailout and kept their assets and salaries.
    Yet the coop has decided to bear the cost of an ever deteriorating banking balance sheet.

    • “The central bank simply creates money by fiat.”

      Absolutely, impossible. John Law thought that was possible, and created a financial bubble that brought chaos to France. The Weimar Republic tried it, and caused hyper-inflation, as has happened also in Argentina, Zimbabwe etc.

      What the state prints is not money, but money tokens, or what amounts to the same thing credit-money. The more of these things that are printed, compared to the actual money they represent, and which is required for circulation, the more these money tokens are themselves devalued. That is reflected in higher prices of the things they are exchanged against.

      As Marx put it, gold circulates because it has value, whereas money tokens have value only because they circulate.

      Had there not been money printing over the last 30 years, the prices of consumer goods would actually have fallen, because massive rises in productivity, the fact that many are now produced in China etc, have reduced the value of these commodities. But, a look at the prices of things that are not produced – shares bonds, and existing property – demonstrates the real effect of money printing. It has caused the prices of these things to go into a hyper-inflationary bubble.

      Look at the curve of the Dow Jones index from around 1982 to 2000, and it shows this effect clearly, look at the continual rise in global bonds during that period, and look at the way house prices went into an astronomical bubble that has priced most new buyers out of the housing market.

  3. Pingback: Coops and executive pay | Bibby on cooperatives

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