Socialism: decide pay in the open, with the lower-paid protected

Add pay.md: pay bands open to every worker, a ratio each co-op must
choose and measure honestly, a double majority for high pay and for
raises to jobs most members hold, and no one voting alone on their own
pay. Stop the reserve rule from charging co-ops for raising the bottom,
and close its gaps for perks, non-members and related companies.

Co-Authored-By: Claude Opus 5.5 <[email protected]>
Claude-Session: https://claude.ai/code/session_01QWPs69B8nQZjtPEUXMKzZx

JoshHeaps.Net/Content/Socialism/index.md

@@ -27,7 +27,7 @@ This model doesn't buy, seize or convert anyone's company. Instead it builds new
 | --- | --- |
 | Existing companies | Nobody's company is bought or taken. Conventional firms keep conventional ownership. |
 | Markets and competition | Co-ops and conventional firms compete for the same customers and workers. |
-| Salaries | Hard and in-demand jobs still pay more. A surgeon still earns a surgeon's salary. |
+| Salaries | Hard and in-demand jobs still pay more. A surgeon still earns a surgeon's salary. Pay bands are open, and high pay needs the lower-paid half to agree. [Who Sets the Pay](pay.md) |
 | Personal property | Homes, cars, savings and tools are untouchable. |
 | Investment and big returns | Investors can still fund co-ops and make 10x or 30x. Their claim just runs out and carries no vote. [Capital, After](capital.md) |
 

JoshHeaps.Net/Content/Socialism/pay.md

@@ -0,0 +1,94 @@
+---
+title: Who Sets the Pay
+section: The Co-op
+order: 22
+summary: Salaries in a co-op are set by its members, so the model guards against two opposite failures, a majority paying itself a bigger slice and pay squeezed so flat that higher-paid people leave, with open pay bands, a pay ratio each co-op chooses, and a second vote that protects the lower-paid.
+---
+
+# Who Sets the Pay
+
+In this model, base salaries still exist, and the co-op sets them. Hard jobs and in-demand jobs pay more ([Worker Ownership](worker-ownership.md)). There's no legal cap on pay.
+
+That makes pay the one big lever the profit split doesn't control. Profit is divided by fixed rules: 30% to the reserve, then shares by each member's share weight, which grows with tenure until it's full ([Member Capital Accounts](capital-accounts.md)). Salaries are whatever the members decide. So a co-op's pay decisions can quietly undo the rest of the design, in two opposite ways.
+
+## Two ways pay goes wrong
+
+**Too much at the top.** A group of members who together make up a majority, say managers and skilled staff, can vote themselves higher pay. That money comes out of profit that would otherwise have been shared among all members. The model already takes part of it back. The reserve gets 30% of any pay above the going rate for the job, meaning the typical local pay for that kind of work ([Investing for the Long Run](the-long-run.md#the-rules)). But the other 70% still goes to whoever voted for it.
+
+**Too flat, so higher-paid people leave.** Gabriel Burdín followed a random sample of Uruguayan workers through social security records from 1997 to 2010 ([Burdín, *Economic Journal*, 2016](https://gwern.net/doc/economics/2016-burdin.pdf)). He found:
+
+- **Worker-run firms paid more at the bottom and less at the top.** Among the lower-paid (the 20th percentile), working in a co-op was linked with about 18% higher pay than in a conventional firm. Among the higher-paid (the 80th percentile), about 4% lower. That's a comparison across people, not proof that the co-op caused the difference.
+- **Their higher-paid members quit more.** Members paid above their own co-op's median were 3.7 times as likely to quit as those paid below it.
+- **Less squeezing meant fewer quits.** The effect was stronger in co-ops that squeezed pay more, and weaker among founding members.
+
+That's one study, in one country. It measured only one of the two failures, since insiders quietly overpaying themselves is much harder to see in the data. So it doesn't show which failure is bigger. But it does show that the second one is real.
+
+**Mondragon keeps a hard cap.** It started with top pay at three times the lowest, raised that to four and a half in the 1970s when it set up its own welfare system, and to six in 1988 in response to tax reforms. The head of its outreach program describes the cap as a balance between avoiding a brain drain and keeping a sense of fairness ([Co-operative News, 2025](https://www.thenews.coop/co-operative-approaches-to-pay/)).
+
+## The rules
+
+The model doesn't set anyone's pay. It makes sure pay is decided in the open, in the right order, and that the lower-paid can't simply be outvoted.
+
+### Pay bands, not personal votes
+
+- **Every job has a pay band**, a range from lowest to highest. Members approve the bands, as part of the pay policy.
+- **Managers place people within the bands**, and can give raises and bonuses there, the way any employer does. Nobody's personal salary goes to a vote of the whole co-op.
+- **Offers can run for up to three years.** A salary agreed within an approved band holds for the length of the offer, even if the band changes later. So a co-op can hire someone with a firm offer.
+
+### Everyone sees the bands
+
+- **Every worker, member or not, sees every band** next to the going rate for that job. Where a job has fewer than three people in it, only the band is shown, not what each person earns. Managers' actual pay is always shown.
+- **Job ads list the pay band.** Several states already require this.
+- **Workers can always talk about their pay.** Federal labor law already protects that for most workers, and a co-op can't ask anyone to keep their pay secret.
+- **The public sees the totals.** Each year the co-op publishes its pay ratio, how much of its total pay was above the going rate, and pay by job, gender and race in summary form.
+
+### Each co-op chooses its ratio
+
+- **The bylaws must set a highest-to-lowest pay ratio.** There's no ready-made number. The founders have to pick one, and the founding documents show Mondragon's six to one for reference.
+- **The ratio counts everything and everyone.** It's measured on total pay per full-time hour, including bonuses and benefits valued at cost. It includes people working through agencies, contractors and related companies. Moving the cleaning to an agency doesn't raise the bottom of the scale on paper.
+
+### Two majorities, not one
+
+A majority vote can't protect a minority from the majority. So some pay decisions need **two majorities**: a majority of all members, and a majority of the members in the lower-paid half. They are:
+
+- changing the pay ratio;
+- any band whose top is above the 90th percentile of local pay for that job, or above three times the co-op's own median pay;
+- any change that raises bands for jobs held by more than half the members.
+
+These votes are by secret ballot, with at least 30 days' notice. That makes both kinds of grab harder: a skilled majority can't vote itself a raise over the heads of the lower-paid, and a scarce specialist can still be paid what it takes, if both groups agree.
+
+### Nobody votes alone on their own pay
+
+- **The board approves managers' bands and the chief executive's pay.** Managers who sit on the board step out of those votes.
+- **No two people can set each other's pay.**
+- **Board pay, if any, is set by the members.**
+- **Founders' pay** follows the existing rule: the founding bylaws can set it for at most five years, then the members take over ([The Founder Problem](founder-problem.md#the-tools)).
+- **Pay is added up per person.** Pay from more than one role at the co-op, fees paid to a company the person owns, and pay from a related company all count together.
+
+### Unions fit in
+
+A union can bargain for any group of workers, members or not. For a minority that thinks it's being underpaid, collective bargaining is the standard protection, and it works inside a co-op too ([When People Don't Stay Long](high-turnover.md#unions-stay)).
+
+## Why not a fixed cap
+
+A legal cap on the ratio, like Mondragon's six to one, would be simpler. The model doesn't impose one, for two reasons:
+
+- **Different businesses need different ratios.** A cleaning co-op and an engineering co-op don't hire in the same job market, and a cap that suits one would strangle the other.
+- **Pay squeezed too flat has a real cost.** The large study above found higher-paid members leaving co-ops that squeezed pay hardest. A national cap would make every co-op take that risk.
+
+What the rules do instead is make every co-op choose a ratio, in the open, and make high pay something the lower-paid have to agree to.
+
+## What the pilot measures
+
+The [pilot](pilot-spec.md#what-gets-measured) publishes, alongside the gap between top and bottom pay:
+
+- **the share of pay above the going rate**, so any drift toward insiders paying themselves shows;
+- **how often higher-paid members leave**, compared with the matched conventional firms, so a brain drain shows too;
+- **pay gaps by gender and race within the same job.**
+
+## What this doesn't solve
+
+- **The going rate is a rough measure.** A government wage survey can't tell a strong engineer from an average one, and it carries the same pay gaps as the rest of the economy. It's a yardstick for when to ask questions, not a measure of what work is worth.
+- **Two majorities are harder to reach.** Some fair raises will stall. That's the price of making sure the lower-paid can't be outvoted on pay.
+- **Open bands still reveal a lot in a small co-op.** Some people will find that uncomfortable, and some good hires may not want it.
+- **Nothing here makes a co-op pay its higher-paid people enough.** The rules make it easy to see when it doesn't. Whether members vote to pay what it takes to keep them is exactly what the pilot will show.

JoshHeaps.Net/Content/Socialism/pilot-safeguards.md

@@ -51,7 +51,7 @@ This page lists the ways someone could cheat [the pilot](pilot-spec.md), or sabo
 
 - **Founders' loans and back pay rank behind the bank.** They can't be repaid from the bank's loan money, or while any payment to the bank is late.
 - **Back pay is valued at no more than the co-op's own pay for that job** once it has revenue. Founder loans earn at most the Treasury rate plus three points.
-- **Salaries can't be used to skip the profit split.** Founders can set their own pay in the founding bylaws for at most five years. After that, the members set all salaries. Pay for every role is disclosed to the bank each year, and the gap between the highest and lowest pay is published.
+- **Salaries can't be used to skip the profit split.** Founders can set their own pay in the founding bylaws for at most five years. After that, the members set all salaries. Pay for every role is disclosed to the bank each year, and the gap between the highest and lowest pay is published. Pay bands are open to every worker, nobody votes alone on their own pay, and high pay needs the agreement of the lower-paid half of the members as well as a majority of all of them ([Who Sets the Pay](pay.md)).
 - **Payouts from members' accounts pass a solvency test**, so insiders who see trouble coming can't cash out first (see [Member Capital Accounts](capital-accounts.md#protecting-the-co-op-and-the-people-who-stay)).
 
 ## Relabeling an old business as "new"

JoshHeaps.Net/Content/Socialism/pilot-spec.md

@@ -115,7 +115,7 @@ All of this is written down and filed in a public study registry before the firs
 
 A useful yardstick: among the SBA's mature loan groups from 1992 to 2004, loans making up about 6% to 10% of the money lent eventually defaulted, and about 37% of the defaulted amount was later recovered ([GAO-20-618](https://www.gao.gov/products/gao-20-618)). A lender charging market rates with losses in that range covers them from interest.
 
-**Measures that are published but don't decide:** jobs created, wages at the bottom and top and the gap between them, revenue per worker (a rough measure of productivity), how long members stay, injury rates, and the bank's default and recovery rates. Also:
+**Measures that are published but don't decide:** jobs created, wages at the bottom and top and the gap between them, the share of pay above the going rate, how often higher-paid members leave, pay gaps by gender and race within the same job ([Who Sets the Pay](pay.md)), revenue per worker (a rough measure of productivity), how long members stay, injury rates, and the bank's default and recovery rates. Also:
 
 - **Who got loans.** Approval rates and loan terms by the founders' race, gender and personal wealth. If collateral-based lending quietly shuts out the people co-ops mostly serve, it should show.
 - **Who gets the profits inside each co-op.** Profit shares, founding shares and membership approvals by race and gender, so that an in-group of early members can't quietly take most of the pool.

JoshHeaps.Net/Content/Socialism/the-long-run.md

@@ -66,9 +66,10 @@ That leaves four ways the horizon problem can still get in.
 **1. The reserve's share applies to pay above the going rate, too.** This isn't a cap on wages. Members can pay themselves whatever they decide. But the reserve takes its 30% of everything members receive above the going rate, whether it's called profit or pay.
 
 - **The going rate for each job** is the higher of two numbers: the median pay for that occupation in the co-op's own metro area, from the government's wage survey (the Bureau of Labor Statistics' [Occupational Employment and Wage Statistics](https://www.bls.gov/oes/)), or the local living wage for a full-time worker supporting one child, from [MIT's Living Wage Calculator](https://livingwage.mit.edu/). The living-wage floor matters. In home care the median wage can be close to poverty pay, and a co-op that raises its aides to a living wage shouldn't owe anything for doing it.
-- **It's checked job by job.** Paying one group below the going rate doesn't make room to pay another group above it. The co-op's auditor assigns each job its occupation code from what the person actually does, not from their title.
-- **It counts total pay.** Employer retirement contributions above 6% of pay, bonuses, and severance beyond the co-op's standard formula all count as pay. Co-ops can't promise pensions or retiree benefits they don't pay for in full each year.
-- **How it's settled.** Thirty percent of the excess is moved from members' [capital accounts](capital-accounts.md) into the reserve. No new cash has to be found, because the members already took that money as pay. If a member's account can't cover it, the rest comes out of their future account credits.
+- **Raising the bottom is free.** Pay up to one and a half times the local living wage never counts as above the going rate, so a co-op that lifts its lowest-paid well past a living wage owes the reserve nothing for it.
+- **It's checked job by job.** Paying one group below the going rate doesn't make room to pay another group above it. An outside reviewer, the co-op's auditor or the bank's, assigns each job its occupation code from what the person actually does, not from their title, and the codes are shown to members next to each job. Where the survey has no figure for the metro area, the state figure is used, then the national one.
+- **It counts total pay.** Employer retirement contributions above 6% of pay, bonuses, severance beyond the co-op's standard formula, and perks like a car, housing or loans to members, valued at cost, all count as pay. So does pay to non-members and to people working through a related company. Co-ops can't promise pensions or retiree benefits they don't pay for in full each year.
+- **How it's settled.** Thirty percent of the excess is moved from members' [capital accounts](capital-accounts.md) into the reserve. No new cash has to be found, because the members already took that money as pay. If a member's account can't cover it, the rest comes out of their future account credits, or out of their payout when they leave. For pay to non-members, it comes out of that year's members' profit pool.
 - **There's a precedent.** US tax law already treats salaries that aren't "reasonable" as disguised profit ([26 U.S.C. § 162(a)(1)](https://www.law.cornell.edu/uscode/text/26/162)), so owners can't dodge tax by calling profit pay. This rule stops the same disguise being used to dodge the reserve. The tax test is judged case by case. This one is a fixed formula, so it's cruder but much harder to argue about.
 
 **2. Gains from selling assets go to the reserve.** If a co-op sells a building, equipment, a brand or a patent for more than its value on the books, the whole gain goes to the reserve, not into the profit split. A sale to an insider, or a sale-and-lease-back, is checked like any [insider deal](pilot-safeguards.md#the-hidden-boss).

JoshHeaps.Net/Content/Socialism/worker-ownership.md

@@ -23,7 +23,7 @@ Where does the profit share actually go? Part is paid in cash each year, and par
 
 Why the cap: uncapped tenure weighting builds a gerontocracy of shares and chains people to their first employer. Capped at a career-fraction, people can change companies, move cities, start over, and still reach a full share with plenty of career left.
 
-- **Base salaries still exist**, set by the company. A brain surgeon won't work somewhere without a high salary, and shouldn't have to. Hard jobs and in-demand jobs still pay more. The incentive to do difficult work survives intact. Pay isn't capped, but raising salaries doesn't let members skip the co-op's reserve: it takes its share of pay above the going rate too ([Investing for the Long Run](the-long-run.md)).
+- **Base salaries still exist**, set by the company. A brain surgeon won't work somewhere without a high salary, and shouldn't have to. Hard jobs and in-demand jobs still pay more. The incentive to do difficult work survives intact. Pay isn't capped, but raising salaries doesn't let members skip the co-op's reserve: it takes its share of pay above the going rate too ([Investing for the Long Run](the-long-run.md)). How pay gets set, in the open and by the right people, is in [Who Sets the Pay](pay.md).
 - **Governance is up to each company.** Workers pass bylaws deciding what requires a vote and what doesn't. Some will use direct democracy, some representative systems, some will delegate almost everything to management they hire and can fire. "Workers vote on every decision" is a strawman and always was.
 
 The concrete case: the average employee where I work generates roughly $150,000/year in profit after all costs. That money currently flows upward to private equity. A firm with those economics, built as a co-op, sends it to the people who made it. The numbers, using public figures, are in [What If Conservice Had Been a Co-op?](conservice.md).