about MONDRAGON Corporation

Humans are demanding a fix to inequality and companies like Mondragon are providing a successful blueprint we can follow. 

Mondragon provides us with a successful, working model. It’s not throwing out capitalism, it’s creating a better form of it. It is still private individuals who own capital, but more of us become owners. Companies are still getting wealthy, but that wealth is put to better use. Rather than create a few rich people only to tax them on the back end, we allow everyone to get richer on the front end.

What founders do come to study the model might put it into practice, but if they only create one cooperative that benefits 100 workers, Lorenzo says they miss the point. They need to create a network of them to fund new startups, create new jobs, provide social services, and transfer workers between companies. It is the combination of cooperatives that makes the whole thing self-sustaining, not the individual ones. 

When I published an essay about employee ownership, one person commented: “Why the hell should anybody still start a company and want to become an entrepreneur when he needs to give stocks to every employee he hires? This is completely stupid. If you want to become rich, become an entrepreneur.” Mondragon is a different mindset. “We feel that our collective ‘us’ is more important than ‘me,’ but they are more independent, individualistic people,” Lorenzo says. “So it takes some time to really convince people that this system is worthwhile. They see sometimes that we are a compromise for a full life, so we have to think in new ways, adapt our system.”

Each democratically-run organization is supported by the larger democratically-run Mondragon. Workers at Mondragon cooperatives are guaranteed a job and an income. They are taken care of when they can’t work, provided with universal healthcare if they get sick, receive universal education that trains them for any job, and are provided a pension when they retire. There is no unemployment, no poverty. No one is sitting around collecting handouts from everyone else, they are all actively working and contributing to the system. 

Every year, workers (internally called the “General Assembly”) meet to review prior years’ management, decide how to allocate profits or losses, and approve annual accounts. They vote their board of directors into office (called the “Governing Council”) who, in turn, vote their CEOs into office (called “General Managers”). General Managers hire their own executive team and make periodic reports to the Governing Council who can confer or revoke their powers as necessary. Positions of leadership serve a renewable four-year term and will be removed from office if they aren’t doing a good job.

At the end of the year, Mondragon’s worker-owners collectively create a balance sheet for the coming year. That of course requires skill, which is why education matters so much in a co-op. Priority one is reinvesting in the company: 20% of any profits are to be reinvested in an obligatory reserve fund; another 30% goes into another, voluntary reserve; 10% is used for social, educational and other programs to benefit the co-operative’s local community; and the remaining 40% is placed in the co-op equivalent of a pension fund.

Every cooperative in Mondragon’s portfolio is an essential business—these are manufacturing companies, energy companies, agricultural companies, medical equipment companies, banks. They grow our food and power our cities and build our transportation systems. Their research and development groups invent machines and robotics that improve our world. There are no fast fashion or telemarketing companies in their portfolio. This cooperative of cooperatives is run by workers who directly build the things society needs while directly benefiting their communities with the profits they earn making them. They are self-governing locally even as they compete globally, with plants around the world and products and services sold in 150 countries.

Unlike workers in traditional firms, Mondragon’s worker-owners have two critical rights that make for a different workplace: equity and the right to have a say in the hiring and firing of their CEOs. While the management team skews male, men and women at Mondragon are paid the same amount for the same work—which is not the case almost anywhere else, including the U.S. It also helps that all employees eat lunch in the same staff lunch area. This includes the CEOs, whose votes have the same power in Mondragon’s General Assembly as the janitor sitting across from them.

Workers buy into their cooperative when they become employees, investing up to €16,000 into a personal equity account. They pay 30% of that investment upfront, with the remainder taken out of their paychecks over following 2 to 7 years. After two years with the organization, workers become “members” and start earning interest on their investment at a rate of at least 7.5% annually. If the cooperative does well, they might earn much more than that. Workers can pull this money out of their accounts when they leave the cooperative or retire. 

In 2008, recession hit Spain as hard as anyplace else. At the time, Spain was in the midst of a housing bubble, which promptly exploded. That sent the country into an economic tailspin that led to unemployment levels of more than 25 %. Yet in Alto Deba, the county where Mondragon and many of its co-operatives are headquartered, unemployment dropped to 9.87%, almost a third of the national average, between 2009  and 2010.

When the Spanish government issued a regulation in 1958 that cooperative owners would no longer qualify for the country’s social security program, Mondragon created its own. They founded Lagun Aro, a social welfare arm that provides pensions for workers and their families, as well as disability services when they can’t work. Eventually, it created its own healthcare service, providing medical care for workers and their families.

The co-operativistas had developed a powerful set of educational institutions to supplement the work of individual co-operatives, and to foster the interdependence between them. Today, these institutions include a Culinary Arts Center and University, 15 technology centers, and Europe’s largest research and development complex, according to the Praxis Peace Institute .

The profits generated by each cooperative are put to work for the benefit of the greater whole. Each cooperative gives 14-40% of their gross profits to their division (depending on the division), and another 14% to their parent company. The rest are invested back in the cooperative (60% of net profits), distributed among their employees (30% of net profits), and donated to social organizations in their communities (10% of net profits).

While the average is admittedly bloated by the continent’s big-revenue firms, it still yields a CEO-to-line-worker pay ratio of 129-to-1. (Among traditional companies in Spain, the average is roughly the same). In contrast, Mondragon’s co-operatives have decided on a ratio that runs from 6-to-1 to 9-to-1. And no CEO of a Mondragon co-operative makes more than $1 million a year.

Over time, these cooperatives have federated together as Mondragon Corporation. Each cooperative is part of a larger division, and each division is part of the larger parent company. A cooperative that makes hubcaps, for example, might be part of the larger auto parts division, which is part of the larger Mondragon Corporation.

The university and all of Mondragon’s co-operatives also deal directly with one of today’s major sources of Spanish and global inequality: the pay gap between the executives and average workers.