More and more executives are embracing the idea of stakeholder capitalism. They agree that the private sector—including their company—should consider the welfare, not just of shareholders, but of employees, suppliers, communities, the nation, and the environment. Most important in that list: the average wage-earning employee.
A CEO and other C-suite members may be more than happy to pay lip service to this new vision of business. Yet, once they do, the day-to-day requirements of creating products and services hijacks their time and attention. It isn’t clear how to begin implementing this new business model. Ideals begin to recede in the wave of day-to-day commitments and the protocols of doing business. A CEO and his team have no practical user’s guide, as it were, for shifting their focus from short-term shareholder value to the long-term viability that stakeholder capitalism affords.
Primary among all the imperatives of this new business model is to establish and guard a living wage for employees, an income that allows families to thrive, not just survive. The biggest obstacle to doing this is simply the lack of a methodology for determining if one’s workers are making enough. Are they simply getting by or actually on a path to prosperity?
Now there’s a methodology a company can use: the Worker’s Financial Wellness Assessment (WFWA). It’s the brainchild of a collaboration among JUST Capital, the Financial Health Network, and the Good Jobs Institute. These three organizations have teamed up to provide the tools—including WFWA software—for deciding how much an individual worker needs to get ahead. It goes far beyond simply measuring how a given company’s wages compare with others in the same industry. That information is readily available. This new methodology drills deep into how much money a worker will have left, after taxes and bills, for savings or discretionary spending—and how much his or her family can allocate for its future wellbeing.
“Take, for example,” the WFWA guide to financial wellness states, “someone who is a Retail Salesperson in Pittsburgh. According to the Bureau of Labor Statistics, the average hourly wage for this occupation in that city is $13.75 per hour, and among the top 10% of earners in this occupation, the hourly wage is $21.44. Yet, even for workers making the highest wage for that occupation in Pittsburgh, they still don’t earn enough to support themselves and one child. When conducting this analysis, we recommend utilizing MIT’s Living Wage Calculator, which identifies, by county and family size, how much money a person needs to earn each month to cover basic expenses, including housing, food, transportation, child care, and medical care.” Companies are advised not only to see, in this way, if its workers are earning a living wage, but how much they have leftover in net disposable income.”
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This assessment drills even deeper, in an effort to give employers an unsparing view of their employees’ quality of life: helping a company better understand a given worker’s household planning, spending, savings, and debt.
Many companies are already embracing this responsibility for a simple reason: a decade of research has demonstrated that financially thriving workers are actually the key to creative productivity and growth in profits. JUST Capital and The Good Jobs Institute were founded on the understanding that stakeholder capitalism is the only way for companies to ensure growth in revenue and profit—and thus reward shareholders, and other stakeholders as well, long-term. JUST Capital’s research has found that 50% of workers at America’s 1,000 largest public companies were not making enough to support a family of three, even with a spouse working part time.
PayPal PYPL is one of many companies already devoting itself to providing its employees with a living wage. It did a financial wellness study in 2018 and was not pleased with the results. Almost two-thirds of its employees were running out of money before the next payday. It decided to completely redesign its compensation plan: to increase Net Disposable Income for all employees by 20 percent. In less than two years, it has almost reached that target by instituting a number of changes to reduce health care costs, grant stock awards to all employees regardless of level or tenure, raise wages where appropriate and provide access to personal financial education.
“Capitalism needs an upgrade. Focusing on the financial wellness of our employees is a tangible action all of us can take to build a more inclusive and equitable economy,” said Dan Schulman, president and CEO of PayPal. “
As Schulman points out, Stakeholder Capitalism isn’t a repudiation of our economic system, but a way of making it stronger, more resilient and more durable. It’s capitalism with an eye on the future of our economy and quality of life. These measures represent a more inclusive capitalism that has the wisdom to look forward beyond the current financial quarter toward a more hopeful horizon, with an expectation of growth the private sector similar to gains seen in the 50s, 60s and even 70s. There is no possibility of growth if middle America and the lowest income sectors have no way to improve their quality of life through hard work. To break that link between work and meaningful reward is to destroy the American dream: and that’s what we’ve been doing for decades now.
The tools to reverse that trend are available thanks to this joint initiative. Now it is up to every company to join the dozens of firms like PayPal who have embraced stakeholder capitalism, and start generating growth in jobs, wages and productivity—for the sake of everyone’s future.