Inequality Immorality Entrepreneurs Subvert the Trend

 In Benefit Venture Blog, Reflections, Stakeholder Capitalism

Inequality Immorality: Greed is seldom a motivation for starting a new enterprise. Of course, founders can be selfish, but in the sense that they areinequality immorality seeking self-actualization, auto-determination, personal achievement, autonomy and meeting other personal needs—as well as having just invented a better mousetrap.

Inequality immorality is built into huge differences in salaries between the top and bottom of businesses, especially among quoted companies. CEO pay for major companies in the United States rose nearly 6% in 2017. According to AFL-CIO Executive Paywatch, the average CEO of an S&P 500 Index company made $13.94 million in 2017—361 times more money than the average U.S. rank-and-file worker.

No Justification for Income Immorality

There is no justification for such a scale of inequality immorality. Most macro-economists explain it away by referring to it as a question of supply and demand. There is a growing body of opinion among, even those macro-economists, who suggest that this huge inequality immorality is both unjustified and unsustainable. One of the most vociferous of these is Joseph Stiglitz.

In 2018 book by British economist Douglas McWilliams, The Inequality Paradox: How Capitalism Can Work for Everyone, he states that, “capitalism works best when those operating it have a sense of moral purpose”. This sense of moral purpose must be lacking in an economy where corporate bosses pocket 361 times as much as the average employee.

Inequality Immorality Missing In Successful Startups

At the time Ben & Jerry’s founders sold out to Unilever, their pay ratio from top to bottom was 17 to 1. More founders are taking a position similar to Ben Cohen and Jerry Greenfield. Founders Fund, where Peter Thiel (PayPal founder) is a partner, makes the point that, “the best founders want to radically change the world for the better.” They add that, “if the entrepreneur seeks an impact beyond his own payday and can convince employees of the same, the project is much more likely to get done.” Any company that Founders Fund will consider has to be paying their CEO less than $150k.

“We need to evolve this institution of capitalism so that it is serving the interests of all people and communities, not just the interests of shareholders,” Jay Coen Gilbert, the co-founder of B Lab says in a Fortune magazine article. “We need to reform the institution of capitalism so that ‘in order to maximize profit’ is no longer the driving force and sole purpose of business.”.

Founders themselves generally don’t make a fortune. According to Brandon Evans, 50% of founders make an average of $5.61 an hour. However that’s no reason to expect others to work positively at such paltry pay rates, except maybe co-founders. What they can do is to respond to the implicit challenge of Coen Gilbert and make the changes within their own venture.

Equitable Approach to Startup Employment

Like Ben and Jerry, creators of new ventures can take their own action and frequently do. It’s not just pay, however, that needs to be based on moral principles. To be both equitable and motivating, startup employees salaries have to be matched with dignified conditions and benefits to avoid inequality immorality.

In a recent survey by Deloitte, millennial workers were asked what the primary purpose of businesses should be – 63 percent more of them said “improving society” than said “generating profit.” There is plenty of evidence that startups and relatively new ventures are behaving in ways that the multinationals (by and large) have not woken up to—yet, and before change is imposed. Here are some of them:

  • More than 8,000 businesses—so far predominantly disruptive private companies such as Allbirds in footwear, Lemonade in insurance, and Beta Bionics in medical devices—have already voluntarily adopted benefit corporation governance.
  • Many startups are finding ways to involve their employees closely in their products. For example, Airbnb gives its employees an annual stipend of $2,000 to travel and stay in an Airbnb listing anywhere in the world. Vermont based Burton Snowboards (though not exactly a new startup) gives employees season ski passes and “snow days” to hit the slopes after a big snowfall.
  • Pinterest provides a unique take on the parental leave policy by providing three paid months off, plus an additional month of part-time hours, as well as two counseling sessions to create a plan to re-enter the workplace
  • A key area concerns maternity and paternity benefits. The United States is the only developed economy that doesn’t mandate paid maternity leave. Rep Cap, a Louisiana B2B content marketing agency, considers the cost of paying for maternity leave is much more cost-effective than losing and trying to replace a vital employee.
  • Beauty business, Birchbox founded in 2010, offers full health, dental and vision benefits and everyone gets to own a piece of the company through equity
  • One of the most rewarding benefit investments both for the startup and the employee, is paid personal development. Given their scale, chances are high that learning opportunities go with the startup territory. The advances in education technology and on line learning provide huge opportunities. Innovative approaches, especially through experiential learning, can provide effective returns in maintaining engagement and increasing satisfaction.

My Own Case

Back in my own 1982 UK startup, we did not take an equitable approach to hiring from Day One. However, we progressively introduced ways to deal with inequality immorality, which incidentally, had never been intentional. We developed our people policies from an approach to business that inherently valued the concept of community. Here are some of the practices we evolved. They are in no particular order or relative merit, but may help you think about your own new venturing experience.

  • Distribution of 10% of pre-tax profit to the community, ultimately through a trust. Members of staff could nominate a local recipient nonprofit, where they themselves volunteered. Staff members were allocated an amount of paid time for volunteering (paid volunteering time has since become pretty common).
  • Staff whose job required it were provided with a car and did not have to account for mileage—except that which was charged to clients when on company business.
  • As well as four weeks annual leave, the company closed between Christmas Eve and the first day of the new year. Every employee had their birthday as holiday (paid)—we did not view our people as resources, as in Human Resources.
  • We did not have a fixed founder to employee salary ratio, but we sought to empower everyone through development and each employee had to have a development plan and implement it.
  • Our hiring policy included all the normal procedures, and we added two things to help in building a cohesive internal community. Firstly, every candidate completed the Myers-Briggs Type Indicator, which was always discussed with them, whether they were hired on not. Secondly, shortlisted candidates were required to make a presentation to a group of existing staff members (every level was invited to attend)
  • After 11 years we sold the company to its thirty or so employees for a symbolic one pound sterling.
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