Exactly as it sounds: any profits that a company makes (or, at the very least, publicly traded ones), it must give 20% of those profits directly to those who worked for it. It is, in essence, a mandatory bonus for a job well done.
This, I think, is the key policy that made the Shah’s Iran the only autocracy (that I’ve ever heard of) to make its people wealthier across all walks of life, and to do so consistently for over 20 years, during which the U.S. faced at least one major economic downturn in the 1970s.
Most obviously, profit sharing would help fix the increasing wealth disparity between the corporate business class and the working class, but without significantly increasing the cost of doing business and without the compounding inflationary effects that minimum wage hikes have along the supply chain. As it is a percentage rather than a fixed amount, not only would it keep pace with productivity, but employees and politicians would not need to constantly fight for the increase.
As well, since it is tied to profit rather than gross, there’s little a conniving business can do to circumvent it. Reducing hours or laying people off only leaves the same share to be distributed among those who remain. Raising prices on customers simply creates more profit to be shared. Finally, if a CEO or other high-level executive could receive a pay raise on a whim, why wouldn’t they already be paid that higher amount? This, I think, is why limiting it to public-traded companies would work best: the shareholders would stop upper management from handing out all profits to themselves before reporting that that the company is constantly breaking even.
Because overhead would not increase, this would also not affect the cost of starting a business. As most small businesses remain unprofitable for several years after starting, the entrepreneur would not need to bother with the addition man-hours needed to assign profit-shares alongside paychecks. Moreover, the extra money would allow workers to more easily start businesses of their own. The trade-off to the worker would be simple: does one work for a bigger business for a more stable income but a smaller cut of the profit share, or join a smaller company and potentially reap a greater amount of share from having far fewer people to divide it amongst?
However, the biggest benefit would, somewhat ironically, be to the businesses themselves. Because workers would now have their fortunes tied into the performance of the company, every single one of them would be incentivized to work better and less wastefully. Speaking from experience in the lower ends of big corporate business, most workers aim for mere adequacy rather than excellence, as excellence is seldom rewarded with anything besides of more hours (often under stressful or outright miserable conditions) for the same pay. I myself would often drag my heels during closing hours in order to take home more money, as I was paid by the hour and upper management’s nitpicky complaints about labor allocation were, quite literally, not my problem.
The thing which gives capitalism the edge over all other economic models, from socialism to serfdom, is (in theory) rewarding excellence. Profit sharing would do this for everyone on all levels. Every janitor would be less wasteful with their cleaning fluids. Every office worker would complete their work faster to guarantee a project remain on schedule. Every shelf-stocker would be more careful not to drop anything breakable. Even something as simple as saving and re-using the same styrofoam cup at the water cooler would lower the company’s expenditures and thus allow everyone to profit from their diligence. All of those tiny little cost-saving moments add up to more money than most people consider, simply because they have no reason to consider it.
Some anticipated questions:
“If the company loses money during a period, should the workers lose pay?”
Well, that depends. Was it the worker’s decisions that caused the loss of revenue? If not, why should they be penalized for something they didn’t do?
“Why should I give any profit to my workers when I’m the one taking all the risk?”
Because now the workers share in your risk and stand to lose as well. Thus, as I said, they’ll work better. All stick and no carrot makes for a lousy workhorse.
“Should this profit share be subject to Medicare or Social Security tax deduction, and have withholding for state, federal, or local income tax?”
No. Firstly, this program would lessen the need for welfare by both increasing overall wealth and generally encouraging people to be employed. Secondly, lacking automatic tax deduction would make workers more aware of the tax codes their subject to and, since they’d likely need to reserve some to pay income tax, make them thriftier with their spending habits.
In conclusion, while profit sharing may sound socialist in name, it is actually hyper-capitalistic. It turns everyone into a de facto co-owner of the company they work for (without having to navigate the unknowable whims of hedge funds and Wall Street the way share distribution programs do), it enables workers to more quickly cover payments housing or car loans, and it makes everyone aware of their actions and habits at work, to find new ways to both work better and reduce costs.
Personally, for how it should be implemented, I’d recommend a “man-days” system, where the overall share is divided by the number of total man-days worked, then a worker gets an allocation directly proportional to the number of calendar days they clocked in. This would encourage people to pick up extra shifts and not miss days, and it would ensure that big business could not skirt the rule by simply hiring a load of “independent contractors” (e.g. the professional wrestling model of pseudo-employment).
With all that said, it should be left to the states to determine how and when this 20% profit share is distributed. A one-size-fits-all system seldom goes well for long, and allowing the states to innovate and experiment has generally benefited our nation in the long run.