Contributions are not respected

Contributions do not need to be respected in companies limited by shares.

Critique

Contributions do not need to be respected in companies limited by shares.

Disconnect between contributions and ownership, governance and compensation

Companies limited by shares is an ownership system where shares represent perpetual ownership of an organisation. These shares will often give holders perpetual governance rights and influence in the organisation. Shares can also give holders perpetual compensation rights, where they’ll benefit from the growth of the organisation through share value appreciation or from dividend payments. Companies limited by shares do not create a structure that necessitates that contributions are fairly rewarded. Companies limited by shares can often lead to situations where some contributors receive shares and others do not. It can commonly create situations where the distribution of shares is not based on the value and impact of the contributions that are being provided by each person. This outcome creates a disconnect between contributions and ownership, governance and compensation. This disconnect creates an environment that enables unfair compensation outcomes for certain contributions.

Rewarding earlier contributions over future contributions

Companies limited by shares most commonly reward earlier contributions with shares of ownership due to the risk they took to create the organisation. If the company breaks even or raises more investment the incentive and need for founders to issue more shares for future contributions is reduced. New shares would dilute the existing shareholders. This incentive can create an environment where future contributions can be treated differently due to a lack of incentive to fairly evaluate and reward these future contributions with shares of ownership. The two class system that emerges in companies limited by shares are owners and workers, this distinction can become increasingly exploitative as it incentivises the excessive compensation of earlier financial and labour based contributions at the expense and exploitation of future contributions that do not receive any shares of ownership to benefit from any price appreciation or dividend payments.

Labour contributions are commonly not respected

Company owners pay employees a wage or salary. Owners benefit from the surplus value that is generated by workers labour. It is up to the goodwill of the owners to determine what percentage beyond the wages or salaries, if anything, is going to be paid to the workers for the labour that has generated the available surplus.

Companies limited by shares are often focussed on the importance of maximising shareholder value. This objective can translate into an effort to minimise the amount of income that workers receive so that the maximum amount of profit can be achieved for shareholders. This goal of maximising shareholder value is a fundamental reason why labour can be commonly exploited due to the priority of maximising shareholder value.

Disincentivising labour contributions

Labour is often alienated in a capitalist system as within companies that are limited by shares it is possible for workers to have little to no influence over the products and services they create or how their work is carried out. Workers may not be properly incentivised to reach their full potential as the surplus from their labour is often extracted for the benefit of the shareholders. If labour is not fairly compensated based on the value of their contributions there is a lack of incentive for the workers to perform their best. Companies limited by shares can create environments where workers become incentivised to minimise the effort they make within the organisation due to unfair compensation outcomes for their contributions. Workers would have an incentive to maximise their efforts towards creating new organisations so that their labour won’t be exploited for someone else’s benefit.

Misaligned incentives to record, measure and evaluate contributions

Companies limited by shares can create a two class system of shareholders and workers. A shareholder is incentivised to pay employees enough so that they stay at the company but not too much that it would reduce the profit margins that the shareholders benefit from. Due to this incentive, companies that are limited by shares doesn’t have a large incentive or justification to properly record, verify and evaluate contributions. This incentive results in a lack of justification for owners to create systems that effectively record, verify and evaluate contributions as this could help to empower workers with more knowledge and awareness about the full value of their contributions.

Employees being able to more easily prove their value should more easily be able to find another job that would pay them for the full fair value of their contributions. Within companies limited by shares, it is instead in the interests of the shareholder that a worker's contributions are not publicly recorded and evaluated as this could enable external organisations to identify the best contributors and offer them better compensation. The time and cost involved in recording these contributions is also not in the interests of shareholders as recorded contributions could result in the need to increase the salaries of workers that are now more easily able to find higher income jobs. Shareholders and the directors they select are incentivised to suppress a worker's understanding of their contribution value wherever possible for the shareholders benefit. This can help to prevent the loss of their best performing talent and also could help with minimising the amount they need to pay their workers due to people's lack of awareness about their own value.