In capitalist nations, it is typical for founders to be included among the top-paid staff in the company, and to be treated as a leader. This reflects the top, down approach to social organization that has long been reflected in capitalism and upheld by the state, which places the decision-making power with regard to compensation into the very hands of those who will be paid the result, the private owner, usually including the founder. Naturally, given the power to control their compensation, they inflate that compensation beyond being, in fact, compensation, resulting in private profit.
A mutualist society would be different. Placing the compensation of the general officers in the hands of the general membership, and that of the founder as a matter of original contract, a mutual, reciprocal, or cooperative association would set the compensation according to a principle of its own election. That company which selects the most advantageous, and the most natural, principle of application, will gain from competitive advantages resulting therefrom, such that it will likely become the standard or recognized best practice in the society at-large over time by way of mimicry.
The social role of a founder is to see to it that the organization that they are contributing toward flourishes. More than anyone else, they are responsible for the general management and operations of the organization. As with anyone else, the founder also has a duty to serve their own self-preservation, however. So what should they be compensated?
It is easy to suggest that, since the overall organization is owed largely to the functions they are performing, that they should receive the most compensation. This is, after all, the justification of the capitalist model, which treats private business owners as de facto general managers who are duly owed “compensation” of the greatest degree, the economic profits (which are, as you well know by now, not compensation, but unearned income). But is this the most rational model? Is it the best-suited to mutualism?
Josiah Warren reminds us that the man dying of thirst or hunger will give his entire livelihood to access water or food, but that the taking of that amount above the rate of similar efforts, the cost, is not a fair or just action. In Warren’s opinion, we should not attempt to take the full value (he means use-value) of an item in our exchanges, or else the advantages of consumption have hardly been passed along to the end-user. Indeed, Adam Smith had argued that the advantages of consumption are secured by market competition driving prices toward the cost of production, such that mutualists generally support such mechanisms as a means of achieving Warren’s ends. Mutualists, rather than wishing to gouge the consumer for all that they’ve got, want consumers to have advantages from the use value gained in their market consumption. Instead of the seed-grower taking as much from the purchaser of seed as can be grown from it, minus enough to feed the purchaser to do so again next year, the benefits of production are shared socially between grower and purchaser in the form of cost-based pricing, enabling each to have enough to feed themselves and to invest for the future.
Pierre Proudhon, like Josiah Warren, argued that prices should be driven to cost, and similarly believed a new system of currency was needed to accomplish such a feat, and so proposed his ideas around mutual banking. However, Proudhon had a profound sociological comprehension that led him to develop concepts preempting general equilibrium theory and economies of scale resulting from interpersonal and intersocial production, which he referred to as “social force.” This social force spoke of the emergent social product (a surplus product, particularly when appropriated by the ruling class), or increase, that goes beyond that which could be produced by the sum of the producers taken independently, demonstrating the whole, or total, of production to be greater than the sum of its parts. For Proudhon, the injustice of capitalism was not necessarily that the worker was undercompensated (paid low wages) on a more individual level (though they often are), but that the worker had no claim to the surplus product, which was taken as profit, interest, and rent. In other words, workers may at times be paid their full wage, when reckoned purely as economic wages not including the surplus, but the fact that the surplus, the increase from social force, was not reckoned into their wages demonstrated that the social product was privatized in a most unjust way.
It is also worth noting the position of Aristotle, whose economics prefigured the classical economics of the modern era to some extent or another, and who has much to say with regard to just compensation. Aristotle suggests that each should be paid proportional to their contribution, effectively suggesting that the worth of the contribution is not the matter of question, but that the individual doing the production receives proportionally enough to continue doing what they do while flourishing. For Aristotle, that is, it would not matter that a stonemason produces one cathedral in five years, while a carpenter roofs five of them, but that each is compensated proportionally to their efforts, that there be five masons per carpenter, and that each may continue their trade. Further, Aristotle warns against chrematistics, the art of making money from money, in much the same way that mutualists warn against the various usuries of interest, profit, and rent, these being in fact forms of chrematistics (even if Aristotle hadn’t worked these out in the Ricardian fashion). For Aristotle, the pursuit of wealth as an end is a corruption of the purpose of money, which is instead simply a means intended to be spent and not accumulated. For Aristotle, the best human is the magnanimous individual. The magnanimous individual goes beyond the liberal individual, who is similarly wealthy and also generous, but not to the same intensity. Their moral accomplishments enrich them not through the pursuit of money but largely by accident of their moral pursuits, their virtues. The magnanimous individual understands that money is not an ends in itself, but a means to greater ends, those ends being greatness, recognized by the self as well as by others, in a non-delusional, and completely grounded and well-earned way. For Aristotle, the ends to pursue are those that contribute to a life one can be proud of, magnanimity being translated to “pride” or “greatness of one’s soul.”
What we can gain from the above is that a great individual, someone who is to become a founder, if they are to be pure in spirit, and to have a Great Soul, should not treat money as an ends to be pursued for its own purpose, should not derive money from anything other than genuine effort, should not take the full value of their contribution, should not take command of the surplus product, and should be willing to accept prestige over money in compensation for their efforts. The current system is not so oriented.
Before continuing on the main line of thought, it is important to clear something up.
Founders are not leaders, at least not in the sense typically signified by the word. They are more like stewards in some respects, though they serve for gratification. A leader is someone who is in the lead, who excels under the present circumstances. The leader of a race does not facilitate the racing of the other racers; they are the outstanding racer. The leader of a flying V formation in a gaggle of geese is not the President of the geese, but simply the goose who is currently advanced to the first place position for the time being. The leading sports team is that team with the most wins under its belt for the season. Leadership is not about having commitments to the group, necessarily, and does not inevitably imply stewardship, though it may have positive externalities. The leading goose advances to the front, and in this provides a windbreak, but this is not stewardship in the sense of providing care, as a gaggle forms without contract. The leading sports team has no commitments beyond those to the league with regard to its opponents, tending to its own home field and not to others’. To be a leader, then, is to be in the lead, to have the most points in the game, so-to-speak, and says nothing of one’s commitments to others.
It’s not necessary for founders to become leaders in the sense spoken of. It is their responsibility, instead, to create conditions in which leadership reflects the exercise of prosocial actions that benefit, or at least do not detriment, others. Those overlooking a race are not expected to be the top racer, but to ensure that the race functions according to rules that ensure fairness. This is different from leadership. Confusing the two has led to major consequences.
The founder’s efforts, especially those of an entrepreneur, may be cumulative, reflecting a lifetime of effort to consolidate the know-how to achieve what is being sought-after. As such, and as many of these efforts are not easily tracked but instead reflect the investment of leisure time toward such accumulated wisdom, it is often difficult to qualify the actual time and intensity spent by the founder in developing their wisdom. After all, much learning is not recognized as valuable except in hindsight, following a eureka moment. This being so, rather than compensating the founder according to an hourly rate, it makes more sense to evaluate the worth of the founder’s contributions. In particular, I will be dealing with the founder’s labor, rather than capital, contributions, except insofar as the capital is a form of mental capital, such as a worked-out plan or system that has been documented (and so transformed into capital from bare labor applied to paper). Any premiums on hard capital should be evaluated separately.
Since a founder is responsible for essentially creating or maintaining the common good, the level of their compensation should be directly affected by the level of the common good, or the average benefit to be derived from the creation and maintenance of the system. As the common good, or the average benefit, declines, so too should the compensation to the founder, and, as it improves, so too should the compensation. Founders should be paid more than the average, for sake of proportionality, but while also being tied to the average wellbeing of those under their fiduciary care, and accepting much of their compensation in the form of prestige. What sort of equation may work to divvy earnings out in such a way?
In order to establish an equation for the the ratio of the founder’s compensation to that of the whole, I have decided to use the metaphor of a circle, which stands in for the whole, where:
and, for reminder,
Radius (r) = The squareroot of the Area divided by Pi (√(A ÷ π))
The idea behind this is that a whole can be represented geometrically as a circle or pie chart, and that the founder’s slice should be proportional to a ratio of the circle, related to 1) an average slice of the pie, adjusted to 2) the boundary compared to the whole, and 3) the whole compared to the boundary, where the boundary (Circumference) represents perhaps the potency and limits of the founder’s plan and the total earnings (Area) may represent the capacity of the participants to see it through (the social force), though this analogy is quite imperfect.
With this understood, the equation operates as such:
((E + ((C ÷ A) × E)) + (E + (A ÷ C))) ÷ 2 = Derivative Average (or D).
D ÷ (A + D) = Final Ratio (or F)
F x A = Founder’s Compensation
Every other worker has their wages adjusted to contribute toward the founder’s, before being rendered. The equation for this operates as such:
P ÷ (A + D) = Final Ratio (or F)
F x A = Participant’s Compensation
In my model, founder earnings are pegged to the median of two sub-equations:
1. ((E + ((C ÷ A) × E)) – E is the average earnings of the producers, reckoned by mean, median, mode, or midrange, whichever is highest. Added to this is, we treat the total earnings of the workforce as the area (A) of a circle, from which we derive the circumference (C) (if the earnings of the average producer are 20, and the total workforce earnings, or area, are 200, the circumference is around 50.13), and divide the area from the circumference, before multiplying it by the average earnings.
and
2. (E + (A ÷ C)) – The same average earnings of producers plus the total earnings of the workforce as the area (A) of a circle, from which we derive the circumference, and divide the circumference from the area.
But, this puts us over budget (A), so then we find the ratios for each participant. In the case of the founder, it is
While in the case of the other participants, it is
Now, it is time to render their pay accordingly from out of the actual budget (A). And in each individual case the final compensation is found by
Let’s have an example:
Say the total Area is 3000, with each of the participants being equal to the marginal producer, equally putting in 100.
Here, the founder is compensated as the highest-paid participant, but this is not always the case. In this case, the founder receives 107.10, while the others receive 96.43. In many other instances, where the compensation is not all equal between participants, the founder will fall more toward the middle.
In the following chart, I track the income of the founder as it grows with size and according to differences in the average endowments of participants, so that the effects can be seen. The chart can be read in such a way: Participants x Endowment = Total, Area. Adjustment refers to that of the founder’s wages, which also presents a % of the total, while Mean refers to the average wage (assuming the use of the mean for this example).
At around a million participants, in this example, the founder will receive around 20x that of the average participant with a dilligent workforce, or up to 40x more with a marginal workforce (here, bringing in 10 units per participant). Consider that CEOs today can make upwards of hundreds of times the earnings of their staff, and that only a very small number of companies worldwide approach a million employees. At 10,000 participants, which is a large company (probably only around 1,000 or so in the United States), the founder makes around 4-5 times that of the average participant. Most companies this size award the CEO, who is typically the founder, hundreds of times more than the employees.
In a mutualist society, it is highly unlikely that a founder would be able to establish an institution of such a magnitude in the first place, as such an institution is typically far overscaled, being overburdened by diseconomies of scale, and, as such, certainly relies on external forcing to exist, which comes in the form of subsidies or other such state privileges. As these are non-existent in a mutualist society, and since institutions will tend to reach their equilibrium at an ideal or near ideal firm size therein, they should not be expected within a mutualist society. Even large confederations will have much fewer staff than do the megacorporations that the state keeps afloat today.
In order to generate the most income the founder’s plan must reward participants in a proportional, fair, and just manner that incentivizes their individual productivity to produce as much as is possible collectively. Any kind of surplus or shortage that is experienced in the compensation of the workforce will negatively affect the founder’s income as a result of negatively impacting the whole. Further, the founder will want to utilize to the best of his or her ability the best workforce available, so as to bring up the level of endowment and thereby decrease the number of persons involved in the split. The founder receives the most compensation with a minimally pay-stratified, fairly-compensated team of highly-proficient individuals that are efficiently self-managed.
Using the same example and only considering the mean as the average (as we have been doing all along), 50 participants with an average endowment of 30 will bring in 1,500 total, while 100 participants with an average endowment of 10 will bring in 1,000 total. As a result, the founder will be better compensated with the first team, at 35.95, while the second will bring the founder 14.80. This is because there are fewer shares and greater levels of proficiency in the workforce. While not factored into the table, it is also worth mentioning that these levels are optimal levels resulting from equilibrium levels of compensation. If not for this, the actual productivity would be less than the potential productivity that is consistent with the participants’ endowments. That is, we are assuming the full use and actualization of the participants’ endowments in their production, something that should not be assumed within a framework where the founder has not been incentivized to maintain an equilibrium of this sort.
When the total income is very small, the founders’ compensation is relatively large in proportion. As the total gets larger, the compensation decreases relative to the growth until it reaches a proportionally low point, at which point the compensation grows more steadily. The reason for this is to compensate the founder well in early phases of the organization, when less assistance is given, while tapering off the proportionality as the organization grows in size (the growth in participants thereby democratically diluting the relative impact of the founder overall). Overall, the founder’s absolute income tends to rise and fall with total earnings, but the founder’s relative share of the pie goes up and down with group size. As such, the founder is concerned with the following matters with regard to their impact on income:
If the organization overall starts to decline, this affects the participants’ morale and also the founder’s wages. If the payments to participants are out of balance, this will affect their morale, and thereby the overall organizational earnings and efficiency. If the team is not proficient, the money earned will need to be split many ways, reducing the founder’s wages and efficiency. If the efficiency is diminished, this will affect the absolute earnings.
A founder whose livelihood is tied to the average wellbeing of the participants utilizing his or her vision is a founder who is incentivized to take their fiduciary duties materially more seriously, and who receives the indicators of that firsthand in the form not of profit and loss (which, not affecting wages or premiums, do not affect the efforts of the founder) but of endowed and basic wages and premiums, and the successes and failures of social force. As such, an arrangement of this sort can lend itself to the trustworthiness of a founder, and provide merit toward such a founder’s magnanimity. A founder using such a system of compensation for their own wages will not treat money as an ends to be pursued for its own purpose, will not derive money from anything other than genuine effort, will not take the full value of their contribution, will not take private command of the surplus product, and is willing to accept prestige over money in compensation for their efforts. The current system is not so oriented.
Should such a founder instead be demanded to be a leader, they would demand always to be the most compensated participant. Remember, the leader is that individual who performs best in terms of rewards of the system, being the most outstanding participant. But that is not the role of a founder. The founder need not be the most outstanding or greatest compensated on the team performing their vision, unless that compensation comes in the form of prestige as it should be awarded to magnanimity. It is best that someone else serve the role of leading participant, providing peer competition as well as inspiration while the founder goes about their purpose of serving the whole. This is an example of what I call amoibaiosis, the condition and process of engaging together mutually.