In the previous section, I created a hypothetical spolu with 100 employees, a pre-payroll cash flow of $7,000,000, and a manager that is paid $800,000 a year. That renumeration is based on the 20x multiplier of lowest to highest paid worker.
Even though the spolu CEO is paid a lot less than the corporate CEO, many readers would not want to pay any manager $800,000 a year. I will offer a few more perspectives on this topic.
Management comes with talent, education, and experience. Many of the world’s CEO’s did not get their positions mostly by luck, nepotism, or favors. In their climb to the top, they gained a reputation of leading successful business projects. Whether we like it or not, such talent is in short supply. It needs to be adequately compensated to today’s economic culture.
Would a proven CEO be willing to take a substantial pay cut to manage a spolu? I think some of them would. Some CEOs do have a social conscience. But, for some businesses (like those businesses with many employees), paying managers just a bit more than the employees is not going to find the right management skills. So a salary of $800,000 a year is not unreasonable for this kind of business — in these times.
The spolu culture will evolve. Not only will employees be more motivated by the profit-sharing nature of the spolu, they will be learning how to make collective decisions within their own sphere of influence in the business. In time, the role of the spolu manager will evolve from making decisions for the subordinates toward keeping the subordinates talking and making their own decisions. In essence, the spolu will evolve to a more horizontal hierarchy. Many management functions will move to committees of employees, rather than an experienced CEO processing information to make decisions. There will be less of a need for a high-priced leader.
Small Business
And many spolus will be small businesses. These businesses just won’t have the cash flow to ever pay their managers a CEO salary.
Gaming the Spolu
I like to anticipate critics. One situation I can envision is a small spolu that raises its CEO salary to consume all the profits. As long as the 20x multiplier is adhered to, the spolu network cannot enforce a reduction in this salary. But if no profit distributions are happening, such a spolu would get a reputation of being more of a taker than a giver to the spolu network. If other spolu stakeholders see a CEO salary sopping up the extra cash, they just might start taking their business elsewhere. In essence, the profit distributions provides a lot of self-policing in the spolu network, reducing the need for many rules.
Again, the four axioms:
1. Keep your business structure simple!
2. Focus on your business!
3. Pay your taxes!
4. Distribute your profits!
Founding Entrepreneurs
Founding entrepreneurs are people of great energy, vision, and talents. If they want full control of their idea and the rewards of that idea, they should not put their business under a spolu. But once under a spolu, the founder has to surrender some sovereignty to the senior management team and look towards profit distributions rather than personal gain in wealth.
Published on Medium 2024
Public Opinion Must be Rightly Focused
