Worker Coops – The Pros & Cons

In our last installment, we took a brief look at worker cooperatives as an alternative to traditional business structures and how they might be better at aligning the interests of the company and its employees. This time, we’ll dive a little deeper into the world of worker coops and examine their particular strengths and weaknesses.

Reduced Income Gap

It has been well established how the income gap between executives and their workers has grown dramatically, leading to immense cynicism about the intentions and motives of these corporate leaders in the popular culture. By contrast, most worker cooperatives specifically limit the maximum pay ratio of highest to lowest earners. For example, one successful tech cooperative, Plausible Labs, caps this ratio at 3:1 compared to the average gap found in Fortune 500 companies of over 300:1. Furthermore, the ratio limit in worker cooperatives is typically calculated based on the highest paid versus the lowest paid, which is much more stringent than comparing the highest to the average.

The impact of restricting the pay gap is obvious. With no mechanism to funnel excess profits to a handful of executives, the worker coop would either have to distribute them equally to every worker, re-invest it into the company infrastructure/product or lower its prices. In other words, either everyone shares in the success, the company gets bigger/better or the consumer wins at the checkout counter.

Quality Control

A common behavior found among traditional corporate leadership is to trim waste and cut corners in the product or service in order to maximize profits for their shareholders. However, this has been known to have disastrous consequences when these decision compromise the quality of the product. There have been many examples of how cost cutting measures implemented by executives have been strongly opposed by the designers and workers on the front lines because they would result in an inferior or even unsafe product.

Often times the best people in a position to assess the impact of these tactics on the quality of the product are those that are intimately involved in its creation. In a worker cooperative, these are the same people who are essentially in control of the decision-making process. Consequently, it’s much less likely to see a worker cooperative go down the road of sacrificing quality or safety to eke out a few more bucks in the bottom line. On the contrary, the workers responsible for designing and building a product have invested a tremendous amount of personal pride in their creations and are more prone to improve its quality than to degrade it.

Fund Raising

Perhaps one of the biggest drawbacks of establishing a worker cooperative is acquiring the funding needed to get it off the ground and fuel aggressive growth. Traditional companies can look to outside investors and trade equity for cash needed to run their business. The tech community is awash in the buzz of funding rounds and VC firms pouring millions of dollars into fledgling startups. By contrast, the world of worker coops is much less exciting. Because all of the equity in the coop is divided among its workers, there isn’t anything available to trade for investment capital. Consequently, worker coops look to loans and grants as their main means of acquiring funding.

Not only does this leave worker coops with fewer places to look for funding, it typically means receiving much less to work with when it finds it. Compared to other companies in their market space that have the resources to take risks and aggressively pursue their product development, worker coops are usually relegated to playing it safe and building slowly. This doesn’t mean that a worker cooperative isn’t a viable model for running a business, but it does mean that they are less likely to have the type of meteoric success that is commonly found in the tech space.

Next time, we will take a peek under the hood of some specific examples of worker cooperatives and explore what would happen if some of the top tech companies today were suddenly converted to this model.