How are you dealing with salaries / profit sharing among members? Here's how we do it at Sofi

Co-ops
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Worker coops, how are you dealing with salaries / profit sharing among members? Here’s how we do it at Sofi

Sofi Coop is almost 3 years into its business activity, and we’re looking to optimize our profit sharing methods. Here’s what we do, with some pros and cons we’ve encountered. We’d love to know about how are y’all dealing with this issue in your worker coops.

Background

We’re a Jerusalem based software development coop, offering UX/UI design, programming and management services for social and environmental projects. Things are going well - people are generally happy with their work experience and we’re seeing a significant growth every year.

Shortly: Every member reports her actual worktime. We have a set, equal hourly rate for everyone. Every month you get the current hourly rate * your reported hours. Every few months we raise the general hourly rate.

Why is this our method?

We’re into maximum equality. We figure that everybody’s time and financial needs are equally important, regardless of what is being produced. If a member’s production level is below a certain agreed standard, and attempts to change that has failed, she will be asked to leave. Otherwise, we want to pay equally to every member, so that everybody can meet their economical needs, with no exceptions.

We’re also into maximum freedom. We don’t use any restrictions, fines, punishments or hard management talks to control our members. We’re trying to form a work evironment in which trust and good will are the primary sources of motivation. We have limits, but we rather adjust the coop to match the member needs, than to force members to do stuff they don’t want to do, or to work in ways they don’t want to work in. So if somebody wants to code only 2 hours a day, or take a 3 months vacation, we’ll adjust and add another team member to keep up with the project needs.

At the same time, we are implementing a lesson from the Israeli Kibbutz - which is a kind of socialist/communist agricultural villages where everyone gets (or were supposed to get) an equal access to food, houses and other Kibbutz resources. In those settelments there was an issue with people who got the resources they needed but didn’t contribute enough productive work. This was a source for tension that later on weakened (among other issues) relationships and structures to the degree of almost total privatization.

Right now our solution is an equal hourly rate as described above. We deal with the production rate differences, and in return get a peaceful profit sharing process, with almost no discussion over personal raises, payment comparissons or unfair wealth ditirbution.

Main Pros

  • Everybody feels their time is equally important. My needs are (generally) similar to yours, even if I’m cleaning the toilet and you’re doing marketing.

  • A smooth, peaceful profit sharing process with little to no disagreements or related difficult feelings.

  • Self reporting of work hours provides transparency and data on all of the active processes, with exactly how much time every action required.

Main Cons

  • Measuring your work in exact minutes / hours isn’t all pleasant for everybody. We find hourself in a somewhat strict situation where breaks doesn’t count as work. In terms of an optimal workplace experiences, just focusing on your task until it’s done might feel better than recording more worktime.

  • Your productivity level and work quality doesn’t affect you salary. Even if you do a brilliant move and solve a 10 hours problem in one hour, you won’t get more profit personally. We do aspire to do a good job so that the whole coop will grow and everybody will get a raise. But for those of us who is producing more but have less total workhours per month, things can feel a bit weird sometimes.

Any Ideas?

We know our model is very different from what’s being practiced in today’s market, even among coops. Well, that’s the point. We’re looking for a payment model that will support maximum equallity, maximum freedom and mainly - maximum happiness, with minimum compromises.

What are your thoughts?

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sounds great!
how does it impact your productivity? have you had this model since the beginning or did you implement it instead of something else?

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At Agaric we do equal salary. Pretty much the same pros and cons as you outline for equal hourly rate, except that recording non-billable time becomes a strong should and not a must, with achieving consistently complete hours recording becoming a perennial issue.

Members can be part time and have also chosen to go hourly when self-perceived productivity or reported hours fall below a minimum.

Curious how Sofi deal with the mix of billable-to-clients versus not-billable-but-still-of-some-value-to-the-cooperative time. Can a member rack up 16 hours in a day working on portfolio pieces or blog posts? Spend a week translating your own site? Or are internal hours required to be approved collectively in advance? Or not compensated at all?

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Shalom! I’d write that in Hebrew but discourse sucks at mixed writing directions.
Thanks for sharing your co-ops experiences. Forgive the deluge of links that follow!

Regarding the lessons you’ve learned from the Kibbutz movement in Israel: This is an issue I think a lot about. I’ve been working in co-ops for about 14 years, and I currently live in a cohousing community (though I’ve lived in Kibbutzim as well).

Kibbutzim, and what we can learn
I believe what you’re referring to is commonly called the Free-Rider Problem, or “the Moral Hazard, but in Teams” as the economist Ran Abramitzky refers to it in chapter 5 of his book The Mystery of the Kibbutz. Fundamentally, he describes the resulting problem as twofold:

  • Shirking - The tendency to do less work when the individual return or benefit is smaller. A common example would be a group project where everyone shares the resulting award; occasionally individuals may do little work but still receive a prize.

  • Discouraging Entrepreneurship - basically, folks will be less willing to take risks, as the bulk of any eventual rewards are not collected exclusively by the initiator.

However, Abramitzky then argues that income equality (in this case, in a Kibbutz but I think it’s applicable to co-ops as well) the equal compensation model means that the individual risk is lower, and secondly that the equal ownership model also means heightened collaboration. He goes on to say that this may be why so many Kibbutzim went on to innovate great technological developments.

He then asks the question, “How did Kibbutzim deal with the Free-Rider problem? Specifically, how did they limit Shirking?” The answer was: Kibbutzim created cultural lessons, rules, rewards and sanctions to encourage certain behavior. These are of course things that communities, not employers can easily do. But I think their example may be helpful.

It should be pointed out that Kibbutzim heavily relied on social sanctions to ensure that those who refuse to do hard work were made to feel bad. Obviously we’re not going to go into that here, but I thought it prudent to point out. The power of gossip, goodness! There is a whole section on this that I’m going to skip here, but safe to say that the lack of privacy and closed network made for a very different environment than what we expect to see in a workplace.

More relevant to worker co-ops however was the practice of social esteem. For instance, hard workers typically ended up in leadership positions like general secretary, treasurer, farm manager, etc. According to the interviews that Abramitzky describes, this feeling of importance really made up for any difference in potential monetary reward. The key was positive reinforcement and encouragement. Crucially, this is something I often forget about in my day-to-day work as a co-manager at my worker co-op.

Finally, he points out that Mutual Monitoring was key to successfully managing Shirking, and not just in Kibbutzim. He cites an example of a “German cooperative which used monitoring and social sanctions to enforce the return of loans by fellow members, and this made them better than banks at supporting loans to risky individuals.” He quotes Kendel and Lazear (Peer Pressure & Partnerships, 1992, p 816) who wrote, “partnerships tend to be formed among individuals who perform similar tasks because mutual monitoring is more effective.” He then writes, “Mutual monitoring was able to remain effective in the kibbutz because the interaction among members and the information transmission mechanisms were more intensive than in professional partnerships.” How was monitoring improved? Essentially, Kibbutzim instituted various mechanisms that made tasks more observable, and worked hard to improve information flows among its members.

My Co-op
And here is where I relate all of this to worker co-operatives, particularly the one I work for (TechCollective, a worker-owned Managed Service Provider in Boston & San Francisco).

We do not all receive the same salaries. In our industry that would be quite impossible. Originally, we did try to pay everyone the same, but after a few years of hearing “Sorry, I’d love to work here but I can’t do so for the same salary as the Tier 1 tech support person,” we changed our tune. For a little bit of background, here is how our business model breaks down:

  • We make 95% of our profits from monthly contracts, from clients who prepay our co-op for an “unlimited” tier of service. The other 5% is from projects & break-fix relationships. This is fairly standard in our industry, and we tend to deliver excellent value to our customers.

  • Our worker-owners are each members of various Teams (which are also part of a Department), and each team is collectively responsible for Roles, which describe individual and shared responsibilities (e.g. Triage, Remote Support, etc). Salary is determined by the base salary for a Department, and then additional bonuses accrue based on the speciality of the Roles an individual takes on.

That is how it works now.
The issue we were running into (many, many years ago now) was that Tier 1 technicians - largely younger, without a family or a mortgage, etc - were coming into our business from jobs where they made only $40K a year, tops. If we were to hire them and then pay them the same as a Tier 3 technician our business would simply collapse from lack of funds. This also would be very frustrating for founding members, who had worked very hard to achieve this business, getting paid far less than they deserve for the first few years, etc.

Additionally, if the total salaries were equal, the Tier 3 tech (with children, a home, debts, etc) might only make $50K/year (these are just examples, no real math here). As you can imagine, we had a tough time finding qualified technicians, willing to work for what we could pay. We also lost some good members during that time.

First, we looked at models of successful cooperatives. Those that tend to pay the same, also tended to have job roles that weren’t specialized - e.g. most members did the same type of work. A person might design websites but also answer phones and do the books. We found that this model did not work for us, for reasons that would take too long to explain in this already uber-long post.

Then, we looked at Mondragon. They pay differing salaries, and maintain a ratio of 6:1 between highest-paid and lowest paid. This is true amongst their 100 co-operatives, which employ roughly 65,000 worker-owners. We decided to follow their lead in this respect.

Mondragon also structure themselves quite differently than most co-ops, and have a general manager (appointed by a governing council, which itself is made up of members) for each co-op. We actually cloned this structure to some degree, especially when dealing with shirking. I understand why they’ve done this, as it helps with monitoring, social issues, equity, etc.

Forgive the length of this post; I hope it will be useful for someone!

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Interesting approach.

We at Common Knowledge are paid the same day rate for everything we do, because we fundamentally believe all work is needed in order to make the cooperative function (this is often on a project basis). We don’t work in hours because we’ve found that tracking hours is more overhead than it is worth. It also leads to an uncomfortable ticking clock sensation. A rough day (6 to 8 hours) is good enough as a measure.

The reproductive work of the cooperative (keeping the invoices following, chatting to people, makng sure the legal obligations are met, care work and so on) is as important as the development and design work because without these other bits and pieces the development and design work wouldn’t be possible and wouldn’t even be booked in! I think this is especially important after feminist critques of “women’s work” have drawn attention to how much of this sort of thing goes invisible, unrenumerated and unappreciated.

I guess the approach I’d take here is: by what standards are you judging you are “producing more”?

It isn’t somewhere where this is easily judged (piecework essentially), like in a factory where you’d be able to say person X produced 100 sprockets in an hour and person Y 50, so person X is more productive. In the sort of work you do (which is allso roughly simlar to the work I do as a software engineer, project manager and so on) there are long spells where you are less productive in terms of overall output: you’ve hit a hard problem, you can’t get in the zone that day or so on. For every time you’ve been very productive, there are other times you’ve been less so, so feel in general it balances out. This is especially the case when productivity is not sheer output, but “delivery” of a project. If the whole project gets delivered, I am not going to be gong back and working out the total input. We all needed to work together to get it over the line.

I’d also say productivity or lack thereof is really a team sport. Getting focus on a coding task that is pure flow requires in truth someone else managing clients and carving that space out for you. Should the person who did this other work be penalised? Both are neccessary for the work done.

I guess ultimately I think this sort of thing balances out. Ideally we’d decouple time spend entirely from payment and just pay on a monthly rate (i.e. a salary), but we aren’t at that place yet.

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This is a really interesting thread! I’m much less versed in running co-operatives so forgive me if my questions seem silly.

In the case of founding co-operatives, there’s significant risk involved with the founders. Be it, lack of savings accrued, lack of time spent with family, mental health, etc. While the idea of equal/just pay feels good, it seems difficult to require someone sacrifice themselves just to get there. I’d be interested in hearing opposing ideas about unequal but perhaps still just pay schemes for co-operatives. Even in communist countries, it’s not like everyone gets exactly equal resources.

I also found the strong focus on measuring productivity to govern “lazyness” to seem not much better from a lot of the non worker owned companies I’ve worked for in the past. Perhaps I’m just a bit biased against measuring every bit of work a worker produces and holding it over their head but I don’t see how a worker co-op doing the same is any better than the sort of worker owner relationship we see in private companies. Am I missing something here?

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I’m not sure I understand what you mean by “measuring” here.

At my co-op, we perform quarterly reviews. The reviewers are chosen randomly and poll everyone involved in a person’s day-to-day work. The metrics do not track specifics, but instead expectations. The questions asked are things like “How would you rate this person’s Quantity of Work? Their Quality? Dependability? Job Knowledge?” etc.

For our specific work we use ticketing and monitoring software on remote computers, and if necessary we could pull reports on who does what work, how many hours are counted as billed/non-billable. But none of that factors into the reviews. Nor do reviews factor into pay. We simply pay based on reasonable salaries determined partly by the market, partly by what a person does above that grade, and partly by what we think people should be paid.

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Like many co-ops, we are committed to undermining Capitalist, Racist and Patriarchal structures in our society. However, we do not believe that simply paying everyone the same will solve that issue, at least in our business. For us, we try to achieve those goals by invoking maximum transparency, assuming mandatory committee appointments (e.g. everyone eventually sits on a governing committee) and making sure people make a wage appropriate to the market-rate or higher. And yes, we absolutely believe that an individual who simply answers phones and chases invoice payments is just as important as those that bring in our income.

However, in our industry it has been nearly impossible to find quality technicians who are also willing to work for the same pay as the person answering the phones (or even 20% higher). The reason is quite simple: 99% of our workers are without college degrees, and have only the power of their labor to compete in a poorly managed “free-market” where even their basic needs (healthcare, housing, etc) completely depend on having stable, lucrative employment. In an economy where it is very easy to find someone to answer phones and chase invoices, it is conversely very difficult to find a solid upper-tier technician who will work for less than what they would make at a traditional business, who also has an interest in becoming an owner (our industry is notoriously anti-collectivist at heart).

For a small group of workers who largely share the same ideological background and are comfortable with putting ideological over economic need, I can see the equal sharing structure working out well. We have not had such luck. I’ve co-founded two worker co-operatives, and have been interviewing/hiring prospective members for over a decade. I have never succeeded in keeping someone on that already knew what a co-op was when we hired them.

Sure, we’d occasionally find those who have a co-op mindset and are familiar with what we do, but they inevitably leave after discovering the amount of hard work and day-to-day “business” we actually do, and how rarely ideology really comes up. Anecdotally, many of these technicians go on to work in web design, so perhaps there is some kind of skills/personality split I’m missing. One correlation I’ve seen is that those who know what co-ops are typically come from a professional-class background, have an education, and care more about working at a co-op than the actual work itself.

In my experience, those that stick around are the ones that need good pay over all, including their own love of co-ops. Which is why it’s so damn important that we are able to pay people what they deserve, while still providing all members with the ability to control their workplace.

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@yochaigal > I’m not sure I understand what you mean by “measuring” here.

In my third paragraph, I was referring to my above quote when mentioning measuring productivity.

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Ah, I see. Thanks!

I wanted to respond to your question regarding the founder’s issue, which is a big one. At both of my co-ops the founders all took on serious loans - twice - at the company’s founding. Our only “payment” is equity based on an additional buy-in, which accrues interest, paid out on our leaving of the company. We applied sweat equity of course, and none of that was returned. A lesson here: borrow what you need, and ensure you have a plan to compensate those that put in all of the hard work. We recently voted in a new member into our co-op who came long after we signed on to the loan, and consider asking him to sign-on as well (we decided against it in the end). We even considered somehow tying patronage to whether a person agreed to put their name on our loan as well, but considered it unfair in the end.

I don’t have a good answer for this, and would love to hear what others do. I know that some co-ops require new members to sign on to a loan (if possible) when they join; I’m not sure that’s good enough. I’ve heard of others that bake-in a one-time “founders bonus” which seems onerous at best. I personally am satisfied simply seeing my co-op succeed, but I can understand why others wouldn’t see it that way.

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I do think this is an interesting and important topic. I do feel some cognitive dissonance when I read “optimize our profit sharing methods”, however. Profit sharing in a coop seems to me to involve at least two things – looking after the needs of the members, and respecting people’s sense of fairness and justice. I don’t think these two always mesh easily: there are conversations to be had; needs, views and opinions to be listened to and perhaps empathised with or understood.

And my experience is that the climate makes a great difference. When money is flowing well, and there is plenty of work and money to go round, people feel secure and most often generous. When work is scarce and money is tight, it tends to become a different ball game, depending on the strength of the personal connections and commitments among the members.

So I would say that profit sharing is a complex matter, and therefore doesn’t really go with the idea of optimization. More like satisficing. Or that nice phrase, “good enough for now, safe enough to try”. Dialogue is needed, and when the context or climate changes, more dialogue. At Cetis LLP we were fortunate at the beginning to come up with a scheme that felt good enough to everyone: it involves some sliding scales where people on projects that earn twice the daily rate don’t get twice the credit, but more like 1.5 times. And to me the really important thing, even if very rarely used, is that we can agree collectively to vary that for any particular piece of work. That’s not easy – as people are no doubt aware, taking away something that was assumed as given tends to be much harder than not giving it in the first place.

To me, this whole area is one where we would do well to practice our best communication styles and techniques. In my experience, the tech community doesn’t top the scale when it comes to generative dialogue – which is a pity, because if we really developed that capacity it might lead to unexpected new things.

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I just recently started reading the Myth of Mondragon which seems to favor things like labor unions over worker co-ops. Especially in larger companies. I wonder if there’s a way for co-operatives to form sort of “unions” for groups of employees to better advocate for fair compensation without having to mandate equal pay across all candidates, especially when doing so might make it difficult to compete in a capitalist economy. I understand that these groups of workers can already vote & advocate for themselves but I’m not quite sure it’s the same as having a union.

Anyways, I’ll report back when I actually finish reading the book :slight_smile:

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One thing that Mondragon does is form “Social Councils” which act a bit like unions. They represent individual members within departments, and can override appointments made by the governing council.

I was actually fortunate enough to visit Mondragon last year. I learned a lot. I made a presentation if you’re interested in seeing what I learned (it makes way more sense when I’m talking about the slides, of course).

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I guess our coop is pretty small. Simply put: people bit the bullet and took a pay cut to work with us, because egalitarianism mattered more than their money - software engineers, especially in the FAANG companies (which none of us were/are) are obscenely paid - https://www.levels.fyi

We have political organisers and we have software engineers, who have huge disparity in salaries and to a lesser extent designers and engineers. So we took an anonymous survey and averaged them. Some people went up, some people went down.

We are still earn a decent amount, enough, as Outlandish put it brilliantly when I worked there, to “take money off the table”. Not lavish, but enough. Obviously I can’t say whether we won’t be kicked in the teeth by recruitment in the future, but at that point we will make a fix for it.

This all said, I am not opposed to pay disparities based on need. If someone wanted more to start a family, for example, I wouldn’t hold to this rule. But as a rule of thumb, it works. It makes me feel happy.

This is an interesting comment. Could you say more? That people leave when they reach the coalface of not having a layer of bosses to more or less worrying about certain brute facts of being a business.

Very valuable discussion however!

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I agree, this is a fascinating discussion that I’m proud to be a part of.
I would remind folks that my experiences are probably highly specific to my industry, area and personal experiences so take that into consideration.

To expound on what I wrote earlier, excluding myself (a die-hard cooperativist since I was 17), folks that agree with our egalitarian principles or want to work for a co-op generally do not stick around. Part of this is selection bias, I’m sure - the types of people that only apply for a job at a co-op because it’s a co-op are more likely not to care about the actual work itself.

For example. My work is a Managed Service Provider; likely the only one on this forum I think. We are outsourced IT - not designers or developers. FWIW, in my experience that generally means candidates are:

  • Working class and/or have very few assets
  • Not college-educated (maybe unrelated technical school)
  • Are not familiar with co-ops
  • Are self-taught

I should perhaps point out that other than the “knowing what a co-op is” bit, I fell into all of those generalizations.

We have hired co-op enthusiasts in the past - all three times, they were developers who were only interested in the co-op angle, but agreed to get the training they needed to do the kind of work we desired. In all three cases, they left within two years for development firms. They all described the work experience as positive, while the work and pay were insufficient (we were paying them at salaries relevant to their experience, not the web skills they weren’t using on the job).

Out of the 6 cofounders of my first co-op, and the 8 at my second, there was only one member besides myself that had ever heard of a co-op. And he left fairly quickly, I should add.

Last year we posted a job at a salary slightly above average for the position in our area - and got about 65 applicants. We worked through them. Of all, only 2 we interviewed had ever heard of a worker co-op. Both were college-educated, with CS degrees. They were not skilled or experienced in what we were looking for (they were both developers) but had written nice co-op friendly cover letters so we interviewed them.

All they cared about was the co-op; we considered hiring either or both of them, but a candidate with relevant experience and skills came along after, and we resolved that the expense to train two co-op focused members was not worth it based on our past experiences.

There are not a lot of MSP co-ops out there (I know of I think 5 in the US). I’ve spoken about this to a larger co-op in LA and another in WI; both have described similar experiences. It seems to me that there are far more development/design tech co-ops, and frankly it seems like the class, educational and ideological makeup of those co-ops are far more… homogeneous. This is of course solely based on my experiences and may be totally bogus. I wonder however how well the equal pay structure would work in larger organizations with divergent skillsets. Even the consensus-based Equal Exchange (a 160 member co-op here in MA) uses scaled salaries, maintaining a ratio of 4:1 between highest and lowest.

I could write more on this, but it isn’t particularly empirical. I will note that in the other thread about salaries, every single respondent used equal pay. And all were development/design firms. So that perhaps backs up my theory a bit?

And finally, I would like to point at what I consider to be the greatest challenge in all this: how do we properly engage prospective members in understanding our democratic structure, the ownership model, and what it “takes” to work at a co-op?

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Interesting. My hunch would be that given the ownership you have over your work, retention as a whole in the cooperative sector is better than in wider business types. If I recall correctly, this is what some research from Coops UK showed.

But if the coop sector is “leaky” then that is a problem, though I do know people on this forum who’ve moved between coops or worked for more than one.

Some of this is simply because there are less coops than regular businesses, so keeping someone within the ecosystem is much more difficult when people have decided to move on, which I think is a natural part of someone’s career. In design/dev technology it is super common, 18 months or so is a regular tenure and I’d imagine most tech cooperatives beat this if they have this employment structure.

I think this is more about the state of the tech industry than the state of cooperatives, something I think many people are trying to fix. I’d say personally some degree of ideological homogenity is actually useful for cooperatives, as you do have to buy into the institutional ethos and culture to make them effective.

I wonder if this is more universal across other forms of cooperatives, say consumer coops and so on. I’d imagine something like “the Coop” in the UK is far more diverse.

I mean this is the Cooperative Technologists forum and is made up of development/design firms consitutionally, so it isn’t too much of a shock. I will note that Unicorn Grocery on that thread has equal salaries.