One of the nine top business practices identified in the Top Small Workplaces Awards published last month by the Wall Street Journal is “Employees share in the risks and rewards”. This is easy to say, more difficult to practice, and very difficult to figure out how much of the profits should be shared and with whom. In this entry we explore this issue.
EBBF’s Farshad (Fasha) Mahjoor, president of one of this year’s award-winning companies, highlighted Phenomenex’s profit sharing plan as one of the key elements in its success–though he feels the amount still falls short. Here are his words:
Another benefit we provide is a “profit sharing plan” for our employees. … I don’t know of any other company that does this. That is, every year, a percentage of our profits is shared equally among our employees that have been with the company for more than two years-based on seniority, NOT status or income ([whereby] the “rich get richer”!). Even though we do that, I still have not plucked enough courage to do as much as … recommended [in the Bahá'í Writings], but I hope one day I can get there.
This “profit sharing plan” is also mentioned in the original WSJ document. Now, I bring this to your attention, since this is where most business people have difficulty with parting with money. A business should NOT be all about money-it should be much more than that. Of course, money is important, but I personally think our responsibility as business owners should be far more than building personal wealth.
Here is one instance in the Bahá’í writings where profit-sharing is mentioned–and where a specific percentage for sharing is suggested:
It is, therefore, preferable for moderation to be established by means of laws and regulations to hinder the constitution of the excessive fortunes of certain individuals, and to protect the essential needs of the masses. For instance, the manufacturers and the industrialists heap up a treasure each day, and the poor artisans do not gain their daily sustenance: that is the height of iniquity, and no just man can accept it. Therefore, laws and regulations should be established which would permit the workmen to receive from the factory owner their wages and a share in the fourth or the fifth part of the profits, according to the capacity of the factory; or in some other way the body of workmen and the manufacturers should share equitably the profits and advantages. Indeed, the capital and management come from the owner of the factory, and the work and labor, from the body of the workmen.
Since this was written at the height of an industrial economy (first decade of the 20th century), it begs the question whether the point is as valid today in a much changed economic landscape. Do we currently need “laws and regulations to hinder the constitution of the excessive fortunes of certain individuals, and to protect the essential needs of the masses”?
What about the amount? Is 20-25% a universal figure for profits to be shared with employees, in factories and other businesses, independent of their size? Do you know anyplace where this is done? In your workplace?
For an earlier conversation on a values-based reward schemes, click here.
This is a very interesting topic indeed. I have noticed that profit sharing is viewed as inferior option to annual bonuses and/or ownership (and dividents) for the key employees. It is likely a given board of directors would feel that equal profit sharing for all would not yield as good results as rewarding each induvidual based on their achievements / key performance indicators.
I don’t share this view. Oftentimes the discussion ends up in arguing about what is just and not is not, where the line between the individual and the work community is drawn, etc. It seems to me that today individual performance is over emphasised, which weakens the overall performance of the entire company (based on systems theory, the individual parts of the system should not overperform since it will not be in the best interest of the system as a whole). Also, the decision makers are concentrating too much on the worst possible scenario; what about the free-riders who will count on other people to make the profit and take their part of the profit sharing for granted.
Structures like profit sharing reguires and implies a high level of trust. Trust from the management towards the employees as well as trustworthy employees. Profit Sharing does not if the individual employee will not do their best and agree that common good is in his/hers best interests as well. These are just some thoughts concerning the issue and hopefully this will serve as a discussion opener, it would be really great to hear about other experiences, comments, etc!
Very interesting comments, Kimmo. I’ve been thinking a lot lately about how widespread the idea is that ‘what I have done and have is not all, but mostly due to mine own efforts’, a belief which serves to justify the status quo, and undermines efforts towards collaboration, reciprocity, and the like.
But from what you mention it seems that for profit-sharing to work (in the sense of encouraging people to work hard), it has to be accompanied by a number of other elements, including: an appreciation for our reliance on each other, and how interconnected we really are; a sense of fairness in the distribution of incomes and rewards; this all implies, as you say, an atmosphere of trust–trust in the bosses, in the employees, in the company.
As to the amount to be shared–I really have no idea. 20% doesn’t sound like a bad amount. After all, it is profits, what’s left over after the expenses. If a company is owned by the people who work there, then in principle 100% of the profits are shared, or are invested in further development of the company. But with the structure of corporations, I assume it will be very difficult to introduce anything more than a token amount for profit-sharing, inasmuch as the owners–stockholders–have invested in the company in order to make money, not to share those profits with others.
We have been distributing 25% (taken from the writings) of our company profits for the past couple years. we take into account 3 factors: the employee’s years of service, their position with the company and their contribution for that year with the company. This in a manufacturing environment that we have greatly increases sense of ownership among the employees.