# Mandatory corporate profit sharing: Why would it not work (or work well anyway)? **URL:** \ **Category:** Great Debates\ **Created:** [April 3, 2019, 12:36pm UTC](https://boards.straightdope.com/t/mandatory-corporate-profit-sharing-why-would-it-not-work-or-work-well-anyway/831974 "2019-04-03T12:36:00Z")\ **Posts on this page:** 20\ **Page:** 5
**Author:** ![D\_Anconia](https://avatars.discourse-cdn.com/v4/letter/d/67e7ee/32.png) [@D\_Anconia](https://boards.straightdope.com/u/D_Anconia)\ **Post date:** [April 21, 2019, 11:20pm UTC](https://boards.straightdope.com/t/mandatory-corporate-profit-sharing-why-would-it-not-work-or-work-well-anyway/831974/81 "2019-04-21T23:20:58Z")
> [@asahi](#): > > That may be true, but people still want and need financial security, and they have to get it from somewhere. Yes, everyone desires financial security. However, no one is OWED a job. ---
**Author:** ![Ruken](https://avatars.discourse-cdn.com/v4/letter/r/f475e1/32.png) [@Ruken](https://boards.straightdope.com/u/Ruken)\ **Post date:** [April 21, 2019, 11:50pm UTC](https://boards.straightdope.com/t/mandatory-corporate-profit-sharing-why-would-it-not-work-or-work-well-anyway/831974/82 "2019-04-21T23:50:45Z")
> [@asahi](#): > > Although I would agree that investors take on the greater risk, employees are responsible for investing in themselves. Most positions require a minimum commitment of some sort. It doesn’t look good if you keep changing jobs every few months. Moreover, an employee’s value in the marketplace doesn’t last forever. Where financial risk comes into play for the worker is in things like education, moving, etc. Ending up $\_0k in debt without a degree is a potential outcome of attempting college. Or your future earnings may not pan out. Spend $10k on a move only for the job to end for whatever reason. Etc. ---
**Author:** ![asahi](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/asahi/32/8693_2.png) [@asahi](https://boards.straightdope.com/u/asahi)\ **Post date:** [April 22, 2019, 11:37am UTC](https://boards.straightdope.com/t/mandatory-corporate-profit-sharing-why-would-it-not-work-or-work-well-anyway/831974/83 "2019-04-22T11:37:57Z")
> [@D\_Anconia](#): > > Yes, everyone desires financial security. However, no one is OWED a job. Agreed, but everyone is owed a reasonable chance at a basic standard of living (we can obviously disagree on how to define the particulars). All people, all corporations should contribute to see that this happens. It doesn’t necessarily mean that we should all guarantee good outcomes for everyone if individuals are particularly irresponsible with their resources, but we should create an economic system in which some amount of sharing takes place. I acknowledged from the outset that the logistics of sharing profits might not work, and I’ve read some pretty good analyses as to why that is. Ultimately, I’d just settle for corporations and rich individuals paying higher rates of taxation and removing loopholes. ---
**Author:** ![Ruken](https://avatars.discourse-cdn.com/v4/letter/r/f475e1/32.png) [@Ruken](https://boards.straightdope.com/u/Ruken)\ **Post date:** [April 22, 2019, 12:13pm UTC](https://boards.straightdope.com/t/mandatory-corporate-profit-sharing-why-would-it-not-work-or-work-well-anyway/831974/84 "2019-04-22T12:13:37Z")
> [@asahi](#): > > Agreed, but everyone is owed a reasonable chance at a basic standard of living (we can obviously disagree on how to define the particulars). All people, all corporations should contribute to see that this happens. It doesn’t necessarily mean that we should all guarantee good outcomes for everyone if individuals are particularly irresponsible with their resources, but we should create an economic system in which some amount of sharing takes place. I acknowledged from the outset that the logistics of sharing profits might not work, and I’ve read some pretty good analyses as to why that is. Ultimately, I’d just settle for corporations and rich individuals paying higher rates of taxation and removing loopholes. Then build a system that enables a basic standard of living for everyone, not just for those who were lucky enough to happen to land a job with a company that did well last year. ---
**Author:** ![bump](https://avatars.discourse-cdn.com/v4/letter/b/7c8e57/32.png) [@bump](https://boards.straightdope.com/u/bump)\ **Post date:** [April 22, 2019, 3:36pm UTC](https://boards.straightdope.com/t/mandatory-corporate-profit-sharing-why-would-it-not-work-or-work-well-anyway/831974/85 "2019-04-22T15:36:37Z")
> [@Sam\_Stone](#): > > How is it better to get, say, $35,000 per year plus profit sharing that might get you somewhere between $2,000 and $5,000 extra, but might get you nothing, vs a fixed salary of say, $37,000? Funny you should mention that- I had almost that same situation when I was out of college. I made 30k a year, but my company had very generous profit sharing. Generous to the tune of me, a non line of business employee (I was in IT), got a profit-sharing bonus to the tune of 15k for two years running. So that was pretty damn awesome- here I was, 25 in 1997 and making a very good salary for what was really a fairly easy job. It turns out I had lucked into the company’s absolute apex. Since we sold burn in and test equipment to IBM and Intel, we were blowing and going in 1997-1998, back when Intel would actually burn in and test their processors as a QC/binning step prior to labeling and shipping. But Intel ended up suffering some kind of crisis in 1998, and cancelled all their orders for equipment. Our management was kind of short-sighted- they didn’t go after Intel hammer and tongs with the lawyers to try and recover some of the inventory, etc… they’d invested in as part of those orders, and figured they’d just eat that, and Intel would hook them up in the future. That wasn’t to be though; Intel just basically quit burning the chips in, and accepting a certain return rate in the race to ship chips faster, which absolutely wrecked my company’s business. They laid some people off and announced no bonuses that year. So I went almost literally overnight from being someone making 30k and expecting a 15k bonus at the end of the year, to someone just making 30k. Needless to say, I took stock of my situation as a recent (1996) computer science graduate with 2.5 years of work experience, and figured now was the time to eject and find some other tech job. (luckily I had the sense to list my salary AND bonus as my pay when looking for new jobs!) Had I not been in such an advantageous position relative to the job market, I’d have been in real trouble, and I didn’t even really have any debt to speak of. I can only imagine people who’d bought high dollar items in the expectation that bonuses might have not been 50% of salary high, but maybe 25% and have that totally cut out from under them. ---
**Author:** ![Triskadecamus](https://avatars.discourse-cdn.com/v4/letter/t/b19c9b/32.png) [@Triskadecamus](https://boards.straightdope.com/u/Triskadecamus)\ **Post date:** [April 22, 2019, 4:01pm UTC](https://boards.straightdope.com/t/mandatory-corporate-profit-sharing-why-would-it-not-work-or-work-well-anyway/831974/86 "2019-04-22T16:01:03Z")
Investing your personal wealth while you are earning wages has a number of fairly sensible limits that should be observed. Primarily, with respect to the problem with this proposal is that you should never allow a major percentage of your long term investments to be made in even the same sector of the economy that employs you. A small percentage might be a worthwhile risk, in return for stockholder information sources for your workforce. But it’s an eggs/basket nightmare in times of economic stress. Investment should be limited even in the vertically integrated sectors of investment, such as supplier, and distributors of your products, or primary support industries for your company. Diversification of assets is an important long term investment criterion. You’re basically loaning your boss money. If he goes broke, and lays you off, he might not be able to pay you back either. Tris * * * If you carry your apples in all your pockets, you have less applesauce to clean up if you fall on your ass. ---
**Author:** ![Omar\_Little](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/omar_little/32/269_2.png) [@Omar\_Little](https://boards.straightdope.com/u/Omar_Little)\ **Post date:** [April 22, 2019, 4:48pm UTC](https://boards.straightdope.com/t/mandatory-corporate-profit-sharing-why-would-it-not-work-or-work-well-anyway/831974/87 "2019-04-22T16:48:00Z")
Mexico has mandatory profit sharing. All companies are required to allocate 10% of their profits as additional cash compensation to all of its employees. This hasn’t really worked out as intended for employees in Mexico. Corporations hire smart people to look out for shareholder interest. So through structuring you can manage the amount of profits that are subject to the profit sharing rules. First you create a service company that employs all of the people. That entity bills a separate company (the “operating company”) that produces the products and sells those products and services to customers. The service company’s income is enough to cover the costs of payroll and burden and enough profit such that 10% will be sufficient bonus to the employees necessary for market compensation. The “operating company”, which has no employees, but buys services from the Service company, is where the bulk of the profits end up, but since it has no employees, there is no profit sharing. This is a common corporate structure throughout Mexico, that is used to manage the amount of profit sharing that companies pay their employees. Trust me, any scheme that the US came up with, a legal structured solution would develop to circumvent it. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [April 22, 2019, 11:03pm UTC](https://boards.straightdope.com/t/mandatory-corporate-profit-sharing-why-would-it-not-work-or-work-well-anyway/831974/88 "2019-04-22T23:03:54Z")
> [@bump](#): > > So I went almost literally overnight from being someone making 30k and expecting a 15k bonus at the end of the year, to someone just making 30k. Needless to say, I took stock of my situation as a recent (1996) computer science graduate with 2.5 years of work experience, and figured now was the time to eject and find some other tech job. (luckily I had the sense to list my salary AND bonus as my pay when looking for new jobs!) > > Had I not been in such an advantageous position relative to the job market, I’d have been in real trouble, and I didn’t even really have any debt to speak of. I can only imagine people who’d bought high dollar items in the expectation that bonuses might have not been 50% of salary high, but maybe 25% and have that totally cut out from under them. You were lucky this didn’t happen a year or two later, when the bubble collapsed. And you were smart to get out - I know the test industry well, and it has collapsed to two or maybe three companies from the many that were around when you were in it. Which shows that there is a risk in industry segment also, besides personal risk of getting laid off. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [April 22, 2019, 11:13pm UTC](https://boards.straightdope.com/t/mandatory-corporate-profit-sharing-why-would-it-not-work-or-work-well-anyway/831974/89 "2019-04-22T23:13:18Z")
> [@Saint\_Cad](#): > > I think that a better solution to accomplish the OP’s goal would be that every company traded publicly should have an employee stock purchase program. But then again, those made more sense back in the day when you couldn’t have your own stock account in less than 5 minutes and manage it online. There is a risk there also, that if you have a lot of money invested in your company’s stock it crashing might happen at the same time as you losing your job. It is why having company stock as a 401K option is a bad idea also. If you want employees to have skin in the game, give them options or grants. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [April 22, 2019, 11:21pm UTC](https://boards.straightdope.com/t/mandatory-corporate-profit-sharing-why-would-it-not-work-or-work-well-anyway/831974/90 "2019-04-22T23:21:40Z")
> [@Sam\_Stone](#): > > Why people think it’s desirable for poor people who live paycheck to paycheck to replace part of their steady pay with risky profit sharing is beyond me. How is it better to get, say, $35,000 per year plus profit sharing that might get you somewhere between $2,000 and $5,000 extra, but might get you nothing, vs a fixed salary of say, $37,000? Is it really a good idea to mandate that poor people must take financial risks with their own paycheck? Right. And this scenario is for 0 raises as far as the eye can see. If say $1,000 a year was put into raises (3%) that compounds which bonuses do not. As I said, the theory was that cutting back on bonuses would cut back on layoffs, but I’m not sure I’ve seen this happening. ---
**Author:** ![UltraVires](https://avatars.discourse-cdn.com/v4/letter/u/ecccb3/32.png) [@UltraVires](https://boards.straightdope.com/u/UltraVires)\ **Post date:** [April 23, 2019, 5:49am UTC](https://boards.straightdope.com/t/mandatory-corporate-profit-sharing-why-would-it-not-work-or-work-well-anyway/831974/91 "2019-04-23T05:49:30Z")
> [@Cheesesteak](#): > > Of course we’re not talking about the same salary. Financial risk doesn’t confine itself to a conveniently restricted set of funds to help you support your position. > > Is your suggestion that the workers of a company in financial distress don’t share in the risk of loss of wealth? > > Sent from my iPhone using Tapatalk Yes. That is absolutely my position. The worker can see that the company is going down the tubes and walk away and get another position. No creditors to pay; no obligations to current customers, no nothing. They can walk away. If their personal finances are in a shaky situation or they have no marketable skills by which they can easily walk away, that was nothing the company did or contributed to. This has always been the situation. Own your own business and you can get rich. You can also lose your house. If you are an employee, you are guaranteed a wage for the term of your employment which could be for your entire career or ending on Friday. But you haven’t pledged anything towards that venture. So, I don’t see how it is remotely fair to argue that the employee should be entitled to a share of the profits. If a company wants to voluntarily offer that as part of the salary and benefits package, then great, but we are talking about mandatory profit sharing. ---
**Author:** ![bump](https://avatars.discourse-cdn.com/v4/letter/b/7c8e57/32.png) [@bump](https://boards.straightdope.com/u/bump)\ **Post date:** [April 23, 2019, 5:09pm UTC](https://boards.straightdope.com/t/mandatory-corporate-profit-sharing-why-would-it-not-work-or-work-well-anyway/831974/92 "2019-04-23T17:09:29Z")
> [@Voyager](#): > > You were lucky this didn’t happen a year or two later, when the bubble collapsed. And you were smart to get out - I know the test industry well, and it has collapsed to two or maybe three companies from the many that were around when you were in it. > Which shows that there is a risk in industry segment also, besides personal risk of getting laid off. I used to work for a company called “Reliability, Inc.” in Houston. I worked in IT, so there was a lot of opportunity for me to move laterally- I actually ended up at a helicopter company since my ERP programming experience was pretty much directly transferable. ---
**Author:** ![Kearsen1](https://avatars.discourse-cdn.com/v4/letter/k/3d9bf3/32.png) [@Kearsen1](https://boards.straightdope.com/u/Kearsen1)\ **Post date:** [April 23, 2019, 5:15pm UTC](https://boards.straightdope.com/t/mandatory-corporate-profit-sharing-why-would-it-not-work-or-work-well-anyway/831974/93 "2019-04-23T17:15:10Z")
> [@msmith537](#): > > Because they helped contribute to those profits? > > I think you are confusing “profit sharing” with owning shares of equity in the business. > > When you purchase stock in a company, do you have to pay money to cover their losses if they have a bad quarter? If they go out of business then you absolutely lose every bit of your investment, so yes. Bad quarter no. Bad year, maybe. Bad decade, most assuredly. ---
**Author:** ![bump](https://avatars.discourse-cdn.com/v4/letter/b/7c8e57/32.png) [@bump](https://boards.straightdope.com/u/bump)\ **Post date:** [April 24, 2019, 1:55pm UTC](https://boards.straightdope.com/t/mandatory-corporate-profit-sharing-why-would-it-not-work-or-work-well-anyway/831974/94 "2019-04-24T13:55:33Z")
> [@Kearsen1](#): > > If they go out of business then you absolutely lose every bit of your investment, so yes. Bad quarter no. Bad year, maybe. Bad decade, most assuredly. That’s not the point. Everyone involved loses if the company goes out of business. The question really comes down to whether or not a worker is entitled to some portion of the company’s profits _above and beyond_ their agreed-upon pay for performing their job. Usually this comes down to some kind of risk versus reward analysis, where the oiwners have invested their capital in the business in the expectation of a return, while the employee hasn’t invested any money- their compensation is guaranteed if they’re employed, regardless of the company’s performance. Look at it this way- let’s say you’re a 12 year old kid, and you have $40 bucks in your pocket. You decide to run a lemonade stand, and you buy sugar, lemons, a pitcher, a spoon, some paper cups, posterboard and some markers and set up shop on the corner. You’ve now spent $30 of your $40 to start your lemonade stand. With your remaining $10, you pay your kid sister $1 to man the stand each time you go inside to pee. You do this 3 times. Now at the end of the day, let’s say you’ve sold $75 in lemonade. That means that you made a $45 profit. Is your little sister entitled to anything other than the $3 that you’ve already paid her for watching the stand? I’d say no- she agreed to watch the stand for $1 each time you had to pee. That’s the negotiation. She has no expectation to have some proportion of your $45- she didn’t put up the money, etc… AND she’s been compensated for her effort already. ---
**Author:** ![Cheesesteak](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/cheesesteak/32/3694_2.png) [@Cheesesteak](https://boards.straightdope.com/u/Cheesesteak)\ **Post date:** [April 25, 2019, 5:27pm UTC](https://boards.straightdope.com/t/mandatory-corporate-profit-sharing-why-would-it-not-work-or-work-well-anyway/831974/95 "2019-04-25T17:27:56Z")
> [@UltraVires](#): > > Yes. That is absolutely my position. The worker can see that the company is going down the tubes and walk away and get another position. No creditors to pay; no obligations to current customers, no nothing. They can walk away. If their personal finances are in a shaky situation or they have no marketable skills by which they can easily walk away, that was nothing the company did or contributed to. The person who walks away from their job doesn’t risk loss of wealth? (that was my original question to you) They don’t have financial obligations or creditors to pay? Those obligations may not be tied to the job, but they assuredly exist, not because the worker has done something wrong, but because the worker is a human being, and human beings have ongoing needs that don’t simply end because they walked away from their job. Whether or not a worker is entitled to particular compensation is a matter of debate, but the picture being painted here is of a workforce that can flit from job to job without a care in the world, because they lead a blissfully risk-free existence. ---
**Author:** ![Ruken](https://avatars.discourse-cdn.com/v4/letter/r/f475e1/32.png) [@Ruken](https://boards.straightdope.com/u/Ruken)\ **Post date:** [April 25, 2019, 6:24pm UTC](https://boards.straightdope.com/t/mandatory-corporate-profit-sharing-why-would-it-not-work-or-work-well-anyway/831974/96 "2019-04-25T18:24:42Z")
> [@Cheesesteak](#): > > The person who walks away from their job doesn’t risk loss of wealth? (that was my original question to you) They don’t have financial obligations or creditors to pay? > > Those obligations may not be tied to the job, but they assuredly exist, not because the worker has done something wrong, but because the worker is a human being, and human beings have ongoing needs that don’t simply end because they walked away from their job. > > Whether or not a worker is entitled to particular compensation is a matter of debate, but the picture being painted here is of a workforce that can flit from job to job without a care in the world, because they lead a blissfully risk-free existence. Your posts seem rooted in a fundamental misunderstanding of what risk is. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [April 25, 2019, 6:56pm UTC](https://boards.straightdope.com/t/mandatory-corporate-profit-sharing-why-would-it-not-work-or-work-well-anyway/831974/97 "2019-04-25T18:56:26Z")
> [@UltraVires](#): > > Yes. That is absolutely my position. The worker can see that the company is going down the tubes and walk away and get another position. No creditors to pay; no obligations to current customers, no nothing. They can walk away. If their personal finances are in a shaky situation or they have no marketable skills by which they can easily walk away, that was nothing the company did or contributed to. Have you ever worked for a company that went down the tubes? Do you think that the average Enron employee was aware of their financial situation? Just about everyone in Silicon Valley was optimistic just before the bubble burst - and then massive layoffs into an environment with no jobs. Those who start a company might have all their money at risk, but those who fund it can control risk to whatever extent desired. The impact to them of the company going under might be much less than the impact to a worker. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [April 25, 2019, 7:09pm UTC](https://boards.straightdope.com/t/mandatory-corporate-profit-sharing-why-would-it-not-work-or-work-well-anyway/831974/98 "2019-04-25T19:09:32Z")
> [@Voyager](#): > > Right. And this scenario is for 0 raises as far as the eye can see. If say $1,000 a year was put into raises (3%) that compounds which bonuses do not. And also retirement benefits. If your retirement is based on your highest years of income, getting bonuses instead of salary will lower your pension income. > [@](#): > > As I said, the theory was that cutting back on bonuses would cut back on layoffs, but I’m not sure I’ve seen this happening. Speaking as someone who was getting bonuses and who is now about to be layed off, I agree. ---
**Author:** ![Cheesesteak](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/cheesesteak/32/3694_2.png) [@Cheesesteak](https://boards.straightdope.com/u/Cheesesteak)\ **Post date:** [April 25, 2019, 7:31pm UTC](https://boards.straightdope.com/t/mandatory-corporate-profit-sharing-why-would-it-not-work-or-work-well-anyway/831974/99 "2019-04-25T19:31:40Z")
> [@Ruken](#): > > Your posts seem rooted in a fundamental misunderstanding of what risk is. I’m sure it does seem that way to you. Despite the fact that my finance professors did instruct me on risk, I remain capable of understanding that the concept of risk is broader than just investment risk. It is more than simply the risk of losing what you currently have, it includes the risk of being unable to care for your future needs. I also noted earlier that investors need to get returns and this particular idea is not likely to make a lasting difference in employee compensation. ---
**Author:** ![Ruken](https://avatars.discourse-cdn.com/v4/letter/r/f475e1/32.png) [@Ruken](https://boards.straightdope.com/u/Ruken)\ **Post date:** [April 26, 2019, 12:50am UTC](https://boards.straightdope.com/t/mandatory-corporate-profit-sharing-why-would-it-not-work-or-work-well-anyway/831974/100 "2019-04-26T00:50:13Z")
> [@Cheesesteak](#): > > It is more than simply the risk of losing what you currently have, it includes the risk of being unable to care for your future needs. Which is not tied to the solvency of any one company, but to your ability to trade your time/labor anywhere. Again, the risk associated with my going to work tomorrow is negligible compared to buying my company’s stock tomorrow. [Previous page](https://boards.straightdope.com/t/mandatory-corporate-profit-sharing-why-would-it-not-work-or-work-well-anyway/831974.md?page=4) [Next page](https://boards.straightdope.com/t/mandatory-corporate-profit-sharing-why-would-it-not-work-or-work-well-anyway/831974.md?page=6)