Advice on labour and operational expenses

From EcoReality

March 8, 2007

Thank you for reading this and lending your advice on the following topics:

1. How members receive compensation for hours worked for the co-op.

2. How the co-op can assess members to meet operational expenses.

We welcome any feedback, whether it is from experiences you have had with similar situations or just opinions. Please specify whether you are stating opinions or experiences in your replies. Please email your reply to James Cowan.

Questions to ponder

1. What option(s) do you prefer, and why?

2. Are we neglecting some other useful options you can think of?

3. Can you add advantages or disadvantages for any of the options?

4. Is there other advice or a resource you can recommend?

The examples below have advantages and disadvantages listed below them. Please take them with a grain of salt and don’t let it sway you from sharing your thoughts.

Please do not be limited by the options here. If you have an idea that is not mentioned, please let us know.

Topic #1

Labour compensation for members.

How do members receive compensation for hours worked either on the farm or on administration for the co-op?

Some ideas that have been proposed are:

Option 1

Monthly labour assessment- Each member will be required to work a certain number of hours for the co-op each month. If the hours are not worked, the member will be required to pay the co-op cash in lieu of hours worked. (Example: The monthly requirement is 30 hours. John works only 10 of those hours so must pay the co-op for 20 hours of work not completed).

Advantages:

The co-op will have a certain amount of work performed each month or will receive financial compensation from each member if hours are not worked.

It is consistent month to month. Members can budget their time and/or money accordingly.

Disadvantages:

What happens if someone works twice the required hours? How do they get compensated for those extra hours worked?

Some sort of system will have to be created for “special circumstances” such as: Members going on vacation, members having a child or members who volunteer elsewhere and have very limited income for certain months etc.

Option 2

Members are paid for hours worked- Each member works as many hours as they can for the co-op and are compensated for each hour they work.

Advantages

This seems to be the fairest system for a member. If one member works 100 hours or 10 hours they will receive payment for those hours.

Disadvantages

The co-op will have major expenses in paying members each month for hours worked.

NOTE It is possible in this situation to have the members working less to compensate the members working more. This still does not generate money going in to the co-op bank account.

Option 3

Operational assessment based on hours worked- Each member logs their hours worked on the co-op each month. When the co-op runs into financial trouble, the finance steward declares that a member assessment is necessary. A ratio formula is put in to place where the members that work more hours will end up paying less than the members who worked less hours.

Advantages

Provides fair compensation to those members that work more hours.

Disadvantages

It’s a bit like roulette. An assessment may come at any time and could be a surprise. The amount of hours each member works may vary from month to month. If a member works 40 hours more than other members for 6 months straight and then for one month only works 2 hours more than other members and the assessment falls on that month, there will be no compensation for the previous 6 months of extra labour.

Option 4

Combining features of Option 1 and Option 3, members pay a monthly cash assessment that is inversely proportional to hours worked. The assessment is set high enough to cover the any anticipated "peak" expense that will happen in the year, such as property taxes and insurance.

Advantages

• Everyone pays something, although it may be large for members who put in few hours, and tiny for members who put in many hours.
• Evens out the "roulette" aspect of Option 3 through substantially similar amounts throughout the year.

Disadvantages

• Hard to balance -- it will tend to either build up or deplete over time, depending on how good we are at predicting expenses.
• Members with less time for labour may become resentful of carrying the majority of the financial burden.

Topic #2

EcoReality operational expenses.

EcoReality has expenses in two categories:

1.Capitol improvements- Projects and improvements to the farm that increase the value or functionality of the property. Examples: A new deer fence for a garden, Insulation in the crawl space, a new roof on the shop etc. Members can fund a capitol improvement project and be issued Class A investment shares in the co-op.

2. Operational expenses- Repairs or maintenance to existing co-op property. Or expenses relating to operations of the farm. Examples: Utilities, food for farm labour, property taxes, seeds for the garden. Members can not be issued shares for operational expenses.

At this time, the co-op has operational expenses that exceed the operational income (most of the operational income is from cottage rent, there is also some income budgeted from farm sales).

We are looking for a way to generate some revenue for the co-op to pay for operational expenses. A budget and cashflow projection show that in July when property taxes are due that the co-op will be in a deficit. There is also no contingency in the budget for emergencies.

Without another income stream, these operational expenses will come from the co-op members.

What is a fair way for the members to split the cost of operational expenses?

Some options are:

1. Monthly cash assessment- Each member pays a certain amount per month to the co-op for operational expenses.
2. Assessment when needed- The finance steward foresees a large expense and asks the members to each put in equal amounts to cover the costs.
3. Operational assessment- Similar to an equal assessment except that the amount each member pays is based on how many hours they worked in the past month.
4. Internal loans- The co-op borrows the money from a member. If no one member is willing to grant the loan, the co-op will assess the money from each member in equal amounts as a loan. The loans would be interest free and will be paid back only when (or if) the co-op has sufficient funds. Here is a link to a full proposal on Operational assessment.
5. Proportional internal loans -- Members agree in advance to loan the co-op necessary funds in inverse proportion to hours worked, based on the assumption that those who are volunteering the most labour probably don't have the cash flow for a loan. Members agree to forgive loans that the co-op cannot pay back within a fixed period -- say, six months or one year.

As of March 5, 2007, the co-op is doing a one month trial with a monthly hour assessment of 20 hours per member per month. If a member does not work the 20 hours, they will be required to reimburse the co-op for the remaining hours at a rate of $15 per hour.

The co-op currently has 4 members who are financial stakeholders: James and Shannon and Jan and Carol. Jan and Carol live on the farm full time and do almost all of the work around the farm and supervise farm labour. James and Shannon live 75% of the time in Vancouver and 25% on Saltspring.

There is a now a Proposed labour policy

There is now a Proposed operational expenses policy

Several proposals on operational assessments have been around since Februrary!

Respectively submitted by James Cowan 22:02, 8 March 2007 (PST)