Good Work: Compensation + Control

Written by @Maren Kate, updated as of @June 14, 2024

Something I’ve spent a great deal of time thinking about over the last year or so is how for-profit organizations can both (a) produce attractive returns on invested capital and (b) produce attractive returns on time invested by the humans who build and run them.

If you survey a smattering of the average American worker or read a headline like , you’ll come away with a sense of the inequity. Whether that manifests itself in rank-and-file team members not being listened to by leadership or low pay in comparison to the lavish pay packages of executives and other C-Suite.

My observation is that often, the inequity in either control or compensation between the majority of a company’s team and its leadership or investors is approached from the human interest angle. For example, it’s not fair for a factory worker to make beans while doing long stretches in less-than-ideal conditions. Or, how can we justify a CEO earning 3000x as much as their average worker?

I don’t disagree; it doesn’t feel “fair” to me either. But at the same time, we’re talking about a financial instrument - a for-profit business, in non-financial terms.

Technically, if an investor could put $1 into a company that had zero employees and successfully produced a 3X return on MOIC (multiple of invested capital), they would—all day long. So would I, and probably so would you.

So, instead, what if we flip the script and look at Compensation and Control from a purely financial angle?

An alternative approach

What if the best way to produce returns for investors is through a far more equitable and holistic organizational structure? The investors, also, don’t have to be external—though they may start that way. The investors could be the employees. There are many examples of companies that are majority employee-owned, including Publix Supermarkets, SAIC, and Recology waste management.

Compensation

It doesn’t take a leap in logic to imagine that a workforce who enjoys an upside in a business's financial success, whether it’s through profit-sharing or ESOPs, will perform better - thus improving the performance of the overall entity.

Control

Autonomy is the capacity to make an informed, uncoerced decision or the right of self-government. It involves having freedom, independence, and self-direction to determine one's own actions, behaviors, and choices without external control or influence.

As we’ve seen through self-determination theory, the feeling of autonomy is an integral component of people’s happiness.

So, in addition to experiencing financial upside from the organization one puts their valuable time into, what if we also got to experience autonomy and a sense of control at work? Again, it doesn’t take a leap in logic to imagine these workers would:

  • Perform better in their roles
  • Enjoy their roles more and thus retain better
  • Lead to positive outcomes for MOIC
    • through general efficiency of the business
    • And (possibly more importantly) innovation that comes from groups of people working together organically versus following a rigid, hierarchical script.

The Win-Win Organization

So why doesn’t this happen more often? The simple answer is probably either ignorance of the option or greed, perhaps more kindly, the fact that so many of us have grown up entrenched in scarcity mindsets.

If you win, I lose.

There is only so much of the pie to go around, so we want to ensure we get our share.

Ironically, some of the more ‘scarcity-minded’ people I’ve ever met have been the most economically blessed. They are also, unsurprisingly, some of the least happy people from my third-party perspective.

But what about getting the capital needed to start and grow a successful organization?

That’s a good point. And one I grappled with for a while.

It has to start at the top ~ the founder, current leadership, if whomever is “in charge” isn’t fully bought in - and willing to “sacrifice” the moon-shot of getting very rich off your business - be in through massive ownership, or 500:1 comp packages - this won’t work.

To be continued…