Profit Sharing-Is it right for you?

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Sharing in profits is an owner’s prerogative. If you consider doing it, then do it for the right reasons. Here are 3 reasons to do it, and 2 reasons it backfires.

IMPROMPTU If you want to give thanks to your employees or leadership team at year-end, you can use an impromptu bonus to reward them for their hard work and loyalty for sticking with you the whole season. This is an impromptu bonus, not guaranteed, and figured out by ownership based on his or her knowledge and experience of how well each person performed.

PROGRAMATIC: If you want to motivate increased profitability and feel that individual or crew bonuses are not the right way, you can implement a formal profit sharing program (for your leadership or company wide.) You set company and divisional profit targets, and let people know what they personally need to achieve, in order to share profits.

For this to truly work, those participating need at least a monthly update on how the company is doing towards hitting its profit targets. It is important to have a discussion with the team that connects the dots for them; how the company performance ties back to their crew or divisional performance. Without the ongoing discussion and explanation it’s useless to have a formal program!

I recommend that the sharing in profits also be connected to the individual’s performance, and thus they need a regular update on how they are doing.

Overall, for this type of program to work, the employees need to know day-to-day and week-to-week how they are doing, so they can connect their actions to the annual prize.

Some profit sharing is paid out in Dec or January (which can make it seem like a holiday bonus.) Other companies will wait till the end of the winter to pay out after the books have been figured out. Yet other companies wait till spring as a way to incentivize their key players to return the following year, and to ensure they have the cash to pay for it. Pick the path that meets your objectives.

GIVING BACKA third type of profit sharing is similar in spirit to tithing; the company will hold aside a percent of its profits to give back to the community. In this case, the employees may give input to where the money is given back, and the company may set aside monies for internal needs as well as external needs. The company may even have a matching program to allow employees to contribute to their community in a meaningful way. Many companies give back, but don’t wait for profits to be declared, they simply run this through their budget as a cost of marketing or doing business.

REJECTIONProfit sharing can backfire when the company culture rejects it.

ExampleI am working with a company whose owners want to give back in a formal manner, but the employees are concerned about the fairness of the formalized program and the complications and stress it will create. In this case, taking time to discuss the pros and cons and adapting the mechanizations is critical to making it fit your culture, or deciding it won’t fit.

NO FOLLOW THROUGH:  It can also backfire when you create a formal incentive program but then don’t “work it” and internally “market it” throughout the year. If you set it up and then simply let it run its course, you won’t achieve enough of a bump in results, or you will end up not paying out any profit sharing, or you end up giving away money for free. All of these will create disappointment!

In this case, you would be better off doing nothing, and just handing out an impromptu bonus at year-end to the employees you felt deserved it, instead of setting up a formal program that backfires.

Example: I work with a mid-size company that uses an informal profit sharing for their leadership team, nothing is programmatic, except the team leaders know exactly what it takes to make the company money and they are able to track it on a daily and weekly basis. Winning for them has become a game, they love winning, and they have become very good at it!

Jeffrey’s Breakthrough Idea: Any profit sharing idea worth implementing is worth implementing right––with the full buy in of your team.

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