We’ve received a number of questions this year on how the patronage dividends are calculated. We’d like to elaborate here on the formula, and we welcome any feedback from you as to how we can improve.
At the end of the year, there are companies in a surplus, and companies in a deficit. If we separate them into two columns for 2015, groups in surplus had $1.7M in surplus, and those in deficit had a total deficit of $730,000. Therefore, there’s about $1M left over that we can pay out as dividends to those who were in a surplus.
The million dollar question is, how much money should be taken from each company’s surplus in order to pay down the deficit? Should it be the same flat amount across the board? Or should different companies pay different amounts?
The board of trustees who established the co-operative we have today, asked this question in the year 2001. At that time, they determined that the most equitable method was to charge smaller companies less, and large companies more. The philosophy behind this is that a large company has a greater ability to absorb costs than a small business.
For example, if company A has 10 employees and is in a $10,000 surplus, and company B has 200 employees with the same $10,000 surplus, the board decided that $10,000 is extremely meaningful to a small business – whereas it may go unnoticed at the large company, as almost a rounding error. Also, when a large company is in deficit, they have the potential to create a much larger splash than the small company.
From that philosophy was born the formula: that each company would pay down the total deficit in proportion to their size.
Therefore, if company A represents 1% of the size of the co-operative, they are responsible for 1% of the total deficit. If company B is 2%, their dividend would be reduced by 2% of the total deficit.
There are some who believe that we should instead subtract the same % from each company. For example, if the total deficits this year were 30% of the surpluses, then each company should pay 30% of their own surplus.
We’d like to hear from you – what do you think is more fair & equitable?
As a member-owned co-operative, everyone’s voice is valuable and will go into setting policy.