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La Bourse  /  Volume V  /  Nº V.06  /  Workbook — the Gainshare employee

WORKBOOK — THE LUMINOUS GAINSHARE EMPLOYEE

Chapter V.06 · The Cooperative Firm, Audited

For the person working inside a gainshare — where a defined share of verified improvement returns to the people who created it. A gainshare is a cooperative firm's pay mechanism fitted to a firm that is not a cooperative. That means every piece of arithmetic in this chapter is about your payslip, and one of them is about a risk you may not have priced.

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WHY THIS CHAPTER IS ABOUT YOU

A gainshare does exactly what the cooperative does: it makes part of your income a residual. Residuals move. That is not a flaw in the design, it is the design, and it is the same trade Craig and Pencavel found in the plywood cooperatives, Pencavel, Pistaferri and Schivardi found in Italy, and Burdín and Dean found in Uruguay. Pay carries the shock so employment does not.

The published picture of what that looks like over time is the John Lewis Partnership Bonus: 18, 14, 17, 15, 11, 10, 6, 5, 3, 2, 0, 3, 0 and 0 percent of pay across fourteen years. Mean 7.43 percent. Standard deviation 6.595 points. Coefficient of variation 0.888. Three years in fourteen — 21.4 percent of them — paid nothing at all. The first five years averaged 15.0 percent of pay and the last five averaged 1.0 percent, a decline of 93.3 percent.

Read that as a forecast of your own variance, not as a warning. It is the best long public record of a variable-pay scheme in a serious business, and it tells you the honest shape of the thing you are inside.

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PART ONE — DISCOVERY

Weeks 1–4: read your own mechanism

Exercise 1.1 — The four parts, in writing (2 hours)

A gainshare has four parts. If one is missing it is a discretionary bonus wearing the word.

1. A baseline. What was true before. Agreed, signed, dated.
2. A measure. A formula, precise enough that two people get the same answer.
3. A share. The percentage of verified improvement that returns to people.
4. A period and a verifier. When it is computed, and by whom.

Write all four out from the scheme document. Where you cannot find one, write not found rather than guessing. A not-found is a finding and a guess is a liability.

Exercise 1.2 — Plot your own series (one afternoon)

Every payment your scheme has made, as a percentage of pay, in order. Compute mean, standard deviation and coefficient of variation exactly as the chapter does for the John Lewis series.

If your coefficient of variation is near 0.888 you are inside a fully working residual. If it is far lower, one of two things is true: the scheme is young, or it is not really a residual and someone is smoothing it. Both are worth knowing and neither is bad news.

Exercise 1.3 — Find out which variable your firm moves first (one week)

Get headcount by year alongside your payment series. Compute the coefficient of variation of each.

This is the most important number in the workbook. If pay varies more than headcount, the gainshare is doing its job — you are carrying volatility and your colleagues are keeping their jobs. If headcount varies more than pay, you are carrying volatility and the layoffs are still happening, which means you are paying a premium for insurance you are not receiving. That is a conversation to have, calmly, with the arithmetic in your hand.

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PART TWO — THE ARITHMETIC

Weeks 5–8: price what you are holding

Exercise 2.1 — The insurance question, honestly (90 minutes)

The chapter's bad-year model:

  conventional: 10.0 % laid off, rest held flat, laid-off keep 60.0 %
  cooperative:   1.0 % laid off, everyone cut 8.0 %

  expected income, conventional     96.00 % of normal pay
  expected income, cooperative      91.68 % of normal pay
  the cooperative member expects     4.32 points LESS

The residual deal is not free. In expected income it loses. It wins only in shape, and only above a break-even relative risk aversion of 3.446:

What to do with this. Not to leave. To ask for the other half of the trade. If you are carrying pay volatility, the thing you are buying is employment stability, and you are entitled to see it in the numbers. Exercise 1.3 is how you check whether you are getting it.

Exercise 2.2 — Price the part of it you cannot sell (2 hours)

If any portion of your gainshare is deferred, held in units, or paid into an account you cannot draw on, you are holding an illiquid claim, and the chapter prices those:

  liquid cost of equity               8.50 %
  marketability discount              25.0 % over 8 years
  annualised illiquidity premium      3.66 points
  illiquid cost of equity            12.16 %

A pound deferred for eight years under a 25.0 percent marketability discount is worth materially less than a pound now, and the firm should be paying you for the difference. If your scheme defers, ask what uplift the deferral carries. If the answer is none, that is a legitimate and unemotional thing to raise, and it is priced rather than felt.

Exercise 2.3 — Your own horizon problem (one hour)

  investment 100, returning 12 a year in perpetuity at 10.0 %
  worth 20.00 to a holder who can sell the claim
  member with 8 years to go:   NPV -35.98   votes no
  member with 20 years to go:  NPV   2.16   votes yes
  break-even horizon           18.80 years

Now yours. Under a twelve-month measurement period with a resetting baseline, an improvement that takes eighteen months to show pays you nothing, and the rational response of everyone in the scheme is to make only improvements that land inside the period.

That is not cynicism. It is the mechanism working as designed, and it is the single most valuable thing you can raise, because the fixes are known and cheap: a long-cycle pool, a fixed baseline term, or a carry-forward. The chapter's own version of the fix — crediting half the retained value to the member's account — moves the break-even from 18.80 years to 14.55, buying 4.25 years.

Exercise 2.4 — Check for a stock being drawn down (one week)

The chapter's hardest warning applies directly here. An improvement achieved by deferring maintenance, running equipment hot, skipping training or burning goodwill is a stock being liquidated and reported as a gain — and in a gainshare, it is being paid for.

Go and look at three things: maintenance spend per unit, training days per head, and voluntary turnover. If any of them is falling while the gainshare is rising, you have found something. Bring it forward yourself, with the figures. It is the fastest route to being taken seriously that exists inside a scheme.

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PART THREE — DESIGN

Weeks 9–12: what to ask for

Exercise 3.1 — The admission rate, for your scheme (45 minutes)

The chapter's degeneration model is about who is inside the mechanism:

  opening participation   80.0 %
  hiring                   5.0 % a year
  admission                2.0 % a year

  after  5 years          69.2 %
  after 10 years          59.9 %
  after 20 years          44.8 %

Compute it for your scheme. How many people in your workplace are in the gainshare, how fast is the place hiring, and how fast is it admitting?

If the ratio is drifting, nobody decided that, and pointing it out is not a grievance — it is a maintenance note about an instrument. Recovery from 59.9 percent to 80.0 percent over ten years needs admission to exceed hiring by 2.94 points a year: 7.94 percent against 5.0 percent. Holding the ratio is far cheaper than rebuilding it, which is the whole argument for raising it early.

Exercise 3.2 — The four asks, in order (one page)

These are the four things the arithmetic in this chapter entitles you to ask for. Ask in this order; each is cheaper for the firm than the one before it.

1. Publish the two series. Payment as a percentage of pay, and headcount, both by year. Costs nothing. Makes the trade visible to everybody.
2. Fix the baseline term. Three to five years, published. Without this the scheme pays for short improvements only, and everyone quietly optimises for them.
3. Set the admission floor. Admission at least at the hiring rate. One clause.
4. Price the deferral. If part of the share is deferred, carry an uplift for it — the chapter's illiquidity premium of 3.66 points a year is the defensible starting figure.

Exercise 3.3 — Write the proposal (one page, one week)

• What is currently uncounted or unpriced, and what it is worth on your figures.
• The baseline, signed, attached.
• What you propose to change.
• How it would be measured and verified.
• What you propose, as a number, and why that number.

A proposal that names its own number is a negotiation. One that does not is a request.

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PART FOUR — DESTINY AND DELIGHT

Exercise 4.1 — Into the standing review (one conversation)

Your two series onto whatever is reviewed monthly. Anything reviewed monthly persists; anything reviewed by exception disappears.

Exercise 4.2 — The dated log (10 minutes a week)

What changed, when, what the number did. When the scheme is reviewed — and it will be — the person with a dated contemporaneous record is believed and everybody else is negotiating from memory.

Exercise 4.3 — The second owner (this month)

One other person who can defend the arithmetic if you are away, and who gets public credit for the first result. One person is a hobby. Two is a practice.

Exercise 4.4 — Delight, as the chapter means it

Here is the pleasure, and it is specific. It is the meeting where somebody asks whether the scheme is still fair, and instead of an argument about fairness somebody puts up two charts and a ratio, and the room spends twenty minutes on the admission clause and goes back to work.

A mechanism that can be read stops being a matter of trust and becomes a matter of maintenance. That is a quieter workplace, and it is a better-paid one, because a scheme nobody can read is a scheme nobody defends when it comes up for review.

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KNOW YOUR SCHEME — A CHECKLIST

Any blank row is a question worth asking, and asking it in writing, as a request for clarity rather than a challenge, is how a scheme gets better without anyone losing face.

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THE CONVERSATION, SCRIPTED

"I've plotted our gainshare payments and our headcount over the years we have data for. Our pay varies more than our headcount does, which is what the scheme is designed to do — we're carrying the volatility so the jobs stay. I'd like to ask for three things that cost almost nothing: publish both series, fix the baseline term, and set the admission rate at the hiring rate so the participating share stops drifting. It's one page."

No grievance, no comparison to another employer, no argument about fairness in the abstract. A baseline, two charts and a proposal — which is exactly what the executive in the parallel workbook is being taught to bring. That is not a coincidence. It is the point of the volume: the practitioner and the corporation are not running different economics, only different vocabularies.

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TWELVE QUESTIONS FOR YOUR TEAM

1. Think of a year the scheme paid well. What did we actually do differently, and could we do it deliberately?
2. What do we do here that visibly creates value and is counted nowhere?
3. Which improvement have we not attempted because it would take too long to show in the measure?
4. What would we try if the baseline were fixed for five years?
5. When has this place held on to people through a bad year, and what did we give up to make that possible?
6. If everyone could point to the line where their work shows up, what would change about how we work?
7. Who is in the scheme, who is not, and what would it take to close that?
8. What is the smallest thing we could start measuring this month that we would be glad to have three years of data on?
9. Where might we be improving the number by drawing down something we will need later, and how would we know?
10. What is already working about how we share gains here, and what makes it work?
11. If we could change one clause, which one, and what would we offer in exchange?
12. What would have to be true for this scheme to still be worth being in when everyone currently here has moved on?

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WHAT TO CARRY OUT OF THIS CHAPTER

Three things, and none of them is a grievance.

You are holding an instrument, not receiving a favour. A gainshare has four parts and every one of them is checkable. The moment you can state the baseline, the measure, the share and the verifier from memory, the scheme stops being something that happens to you and becomes something you operate.

The volatility you carry is a purchase. You are buying employment stability with pay variance, and the chapter says plainly that on expected income alone that trade loses — 91.68 percent against 96.00 percent of normal pay in a bad year. It wins on shape, and only above a break-even risk aversion of 3.446. So check that you are actually receiving the thing you are paying for. That is Exercise 1.3, and it takes an afternoon.

The asks are cheap and they are maintenance, not demands. Publish two series. Fix the baseline term. Set the admission floor. Price the deferral. Every one of those costs the firm less than the slow erosion it prevents, and every one is easier to win the year before it matters than the year after.