Bernie Sanders Employee Owned Business Plan Accidentally Plays Into Executives Hands.
Our first article in this series talks about Senator Sanders plans to change worker compensation and representation. The second article talks about how to fix America's retirement system.
Bernie Sanders has launched a plan to give employees more say at work and more of the profits and ownership. Here is the explanation of his plans. The plans are interesting and similar versions have worked with mixed outcomes in other countries. Unfortunately, cunning and crooked executives can exploit loopholes to enrich themselves and hurt employees. It is doubtful that Senator Sanders or his team meant for this to happen and didn't consider the ramifications of this plan.
The first part of his plan calls for large companies to give shares to their employees as part of compensation so that they can get dividends from the stock and share in the company's growth. The problem are companies like Enron. In order to drive up their stock price they made employees put their retirement in Enron shares. Other companies do the same and prefer it to cash payments. (The cash would be used to purchase other retirement investments.) This is because executives tend to get paid based on share price. If the employees are putting money into the company the share price tends to go up, which means the executives get paid more. Executives can get paid more and cash out if they want. Employees on the other hand are discouraged from cashing out. The company can keep it's cash and use it for more share buybacks and create stock market bubbles. If a crash happens executives can just retire with their golden parachutes. Employees in many current plans would be held holding the bag if companies fail, while executives would get away with the money. Senator Sanders plan would require or greatly incentivize crooked executives who'd want to do that.
His plan also supports the use of federal funds to help transition businesses to worker cooperatives and allow employees to buy up closing firms. Mitt Romney and the late Bill Bain can tell you how well that works. They looted Bain Consulting as part of a sale to employees. The firm needed to get bailed out within a few years. Cooperatives should be organized as partnerships to allow for them to obtain flow-through tax benefits. This is how many businesses are organized from law firms to Bloomberg. If a law change is needed, then it should happen.
A better plan would give employees the option of receiving the money in employer stock or cash. They could either spend the money or invest it in the ways that they prefer. Employees should get seats on boards like they do in Germany. This will give them enough of a position at the top of the company to know whether they should buy it and on what terms. This should help prevent scams like the sale of Bain Consulting. No government assistance should be provided because they already receive tax benefits. If those benefits are too hard to obtain, change the law to allow them to organize as partnerships.
Next, we'll talk about how to easily reform retirement in America to help people have enough money for retirement without lots of stress.