Recent figures show businesses have increased their profits much faster than their workers' wages, with finance leading that shift. But there is one sector of the finance industry where workers have maintained an above-average share.
It is the cooperative and mutuals sector, where businesses are generally owned by their customers, or are sometimes a collective of producers or workers.
After reading a recent ABC News story that reported on the falling share of national income going to wages, and the rising share to profits, the lobby group for the sector, the Business Council of Cooperatives and Mutuals (BCCM) commissioned some research.
Andrew McDougall, a principal and partner at SGS Planning and Economics, which is itself an employee-owned firm, crunched the numbers on how much of a typical mutual's income went to its workers.
"We replicated those results as best as we can given the available data," he told ABC News.
"And we found that more than two-thirds of total income is delivered via wages, so significantly higher than the more traditional business structures in Australia."
According to the Reserve Bank, the average share going to employees across all businesses outside the finance sector was about 60 per cent of earnings.
But the results were "starkly different" in the finance sector, according to Mr McDougall.
The RBA data show, economy wide, that workers in finance and insurance companies received less than 30 per cent of the total earnings.
But SGS's analysis estimates that banking and insurance co-ops and mutuals, which include credit unions and not-for-profit private health insurers, paid out about 68 per cent of their earnings to staff.
'We don't pay dividends to a third party'
BCCM chief executive officer Melina Morrison argued that was a result of not having shareholders demanding a constantly rising return.
"Business is really about choices," she told ABC News.
"In a cooperative or mutual they are choosing to use their income in a way that rewards the people that they serve, their customers and their owners, and the people who provide that service, their employees."
Mark Genovese runs Westfund, a member-owned health fund that services more than 50,000 customer-members who mostly live in regional New South Wales and Queensland.
"I've worked in mutual banks and credit unions for 35 years, and now I've been in private health for three years," he said.
"And every day I get up, I go to work [and] we just think about how we can give money back to our stakeholders, which are our members and our staff.
"We don't have anyone else to focus on. We don't pay dividends to a third party. I don't have those pressures.
"As a business, the pressure we have on is to make sure we run our business efficiently, which can provide the greatest benefit we can to members and staff."
Captured by staff?
A risk in any organisation where day-to-day management is divorced from ownership — whether it be large share-market-listed companies or local cooperatives — is that staff may put their interests ahead of the owners.
It is clear from speaking to those running mutual businesses that they do see their staff as vital stakeholders alongside their member-customers.
"In our merger with HCF, our entire organisation was brought into HCF intact with all the staff and the brand, the history, the heritage and all of the people," said Simone Tregeagle, the chief officer of Sydney-based member-owned private health fund rt health.
"Now, in a profit-driven environment, you would be looking for synergies and 75 per cent of those people would have been out the door on day one.
"So that mutual ethos, which is around how do we also benefit the people that work here, we saw play out incredibly vividly in that merger."
However, Ms Tregeagle said that was exactly the way her members expected the staff who worked for them to be treated.
"We invest in a level of high touch, really personalised service, making sure that people can talk to us straight through, not jumping hoops, not forcing people into channels that they don't want, not timing phone calls," she said.
She argued that, despite the fact workers in the mutual sector received a greater share of the business income, members also received more of their insurance premiums back in benefits.
"We deliberately target more narrow margins," she said.
"We are trying deliberately not to profit from our members.
"The evidence is that we pay more back to members than big for-profit funds."
That statement is backed by the most recent Private Health Insurance Ombudsman report for the financial year 2020-21, which showed most member-owned funds returned 85-90 per cent of premiums back to members through benefits, compared to 83-84 per cent for the three largest for-profit funds, BUPA, Medibank and NIB.
However, many member-owned funds had higher management costs as a percentage of premiums than the big three for-profit funds, including rt health, which also had a lower return to members in benefits in the 2020-21 financial year, before its merger with HCF.
'It's a very democratic system'
Westfund is based in Lithgow, about two hours west of Sydney, and employs about 100 people in the town, which is also where many of its members/customers live.
Mr Genovese said that brought its own kind of market discipline to running the business.
"When I'm making a decision the test is, if I walk down the main street of Lithgow, am I going to get pulled up and criticised?" he said.
Mr Genovese said even in mutuals without such a close geographic connection to their membership, there was a high level of management accountability.
"If you don't engage with your members and keep in touch with them, come AGM and there's something they're not happy about, you'll know about it," he said.
"They have the opportunity to make changes, they vote for the directors that sit around the board. It's a very democratic system."
Economies of scale?
One reason the profit share of income dwarfs the wages share in the broader finance sector is computer technology has created massive efficiencies over the past few decades.
The Reserve Bank's research from 2019 found there were fewer workers in the sector in Australia than there had been in 1990.
The Australian Banking Association said that might explain why finance had a much lower wages share than most other sectors.
"Banking has, perhaps, seen a greater technological shift than most others as consumer preferences have shifted radically and new technologies have enhanced service offerings," a spokesperson said.
As much smaller organisations than the big four banks, and even the regional banks, mutuals have not necessarily had access to as many benefits from technology and the economies of scale it offers.
Mr Genovese also said his organisation, like many mutuals, had made a conscious decision not to slash staff and the personal service they offered.
"We're not closing branches in regional areas," he said.
"So we do put another layer of service into what we do for our members, which our members enjoy, our members like, and there's a cost to that obviously.
"There's no doubt automation for any business needs to be focused on and considered, but we're not cutting and slashing and making huge radical changes.
"We certainly didn't outsource our contact centres overseas and those type of things. I don't know of any mutuals or cooperatives that did that."
'Balance in the economy'
Ms Morrison said mutuals were not immune to cost cutting, but they sought to balance their stakeholders' interests.
"They have to be efficient. They exist in the same real-world economy as all other businesses," she said.
"If you look at financial services, for example, they're in very competitive markets, cost of capital is higher [for mutuals], regulation costs proportionally are higher for cooperatives and mutuals."
Certainly the big four banks and, to a slightly lesser extent, the large regional banks and other major financial institutions can raise money on global markets at a lower cost than smaller mutual banks and credit unions.
Mutual banks also have to balance the competing demands of their members, some of whom are savers seeking higher deposit rates while others are borrowers seeking lower interest rates.
Nonetheless, even if they cannot always provide the lowest-cost product, Ms Morrison argued they helped keep a lid on how much for-profit financial institutions were able to charge.
"They provide a mitigation against profiteering, or even price inflation, by transparently delivering pricing that reflects the true value of that pricing structure to customers without the need to reward or share profits with shareholders," she argued.
"So they're like the balance in the economy, brought about by diversifying it."
Disclosure: The author was once paid by BCCM to moderate panel discussions at its annual leaders summit in November 2017. He is also a customer-member of Teachers Health.
