>Yet if management and labor are one in the same, then who is setting the compensation rates for labor except labor itself?

I can't see the problem with that; however please do not mistake me as a proponent of co-operative business models. Although I regard these as better than the traditional capitalist profit making model, they are imperfect, as they work within the system of private property and capital accumulation, and cannot hope to compete with the companies owned by capitalists, at least on a large scale. It is possible to extract surplus from yourself, the best option in such a situation in my opinion would be all the workers collectiely deciding what to do with that surplus, though I will repeat that I am not a proponent for this, I am a proponent for the total removal of capitalism, and indeed abolishing the law of value (from which surplus value is derived), as would happen in a Communist society.

>I'm not sure this is a meaningful distinction. Where is a surplus created in this process?

The owner pays the worker x wage for a certain amount of labour time, this labour time being equal to the amount required to "sustain" the worker[0], however the worker's commodity which he provides can actually produce more than what is required to sustain him, because the worker is a living being, this commodity of labour can actually create value. Remember that the worker is being given enough to sustain him, i.e replicate the labour power commodity, not the value he actually creates. That value he actually creates can't be estimated in advance, as value only becomes apparent in exchange. The surplus is the disparity between the value of labour power and the value of the product, which is realised in the sale of the product. Part of that surplus goes toward paying taxes, future development etc. however it is wholly originating from this act of buying and selling, everything at its value. There is no cheating or trickery or force involved, this explains profit.

[0] From Classical Econophysics by Cockshott et al.: Marx’s distinction was a useful clarification of previous classical usage, which in effect amounted to a play on the word ‘labour’. At the same time it opened the door for his concept of exploitation. Marx asked, where does profit come from? The answer, Marx said, lies in the special commodity labour-power. The worker sells to the capitalist labour-power which embodies (let’s say) 5 hours; that is, the value of the worker’s means of subsistence amounts to 5 hours per day. But once he gets through the factory gates or the office door, he finds that the working day is 8 hours. The worker therefore performs 3 hours of ‘surplus labour’ per day and this is manifest in 3 hours’ worth of surplus value accruing to the capitalist. Marx calls the labour time workers spend in reproducing the value of their wages the ‘necessary labour time’, and he calls the ratio of surplus labour time to necessary labour time the 'rate of surplus value'. In the example just given the rate of surplus value is 3/5 = 0.6.

What do I mean by "sustain"? It is not merely how much the worker requires to live. The Wikipedia article on labour power puts it as: Included in the value of labour power is both a physical component (the minimum physical requirements for a healthy worker) and a moral-historical component (the satisfaction of needs beyond the physical minimum which have become an established part of the lifestyle of the average worker). The value of labour power is thus a historical norm, which is the outcome of a combination of factors: productivity; the supply and demand for labour; the assertion of human needs; the costs of acquiring skills; state laws stipulating minimum or maximum wages, the balance of power between social classes, etc.