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Profit Sharing Plan Keeps Employees in the Game

Profit Sharing Plan Keeps Employees in the Game

“We cannot afford it,” stated the executive in a meeting after our department proposed a profit sharing plan to include all company employees. With the industry’s harsh competitive environment, our expense reduction mandates, along with the absolute requirement to get every employee moving the same direction, I assured the room full of executives we could not afford to pass by the opportunity to place all company employees on the proposed profit sharing plan.

What was the downside, I asked.  The plan only paid if the company hit the established revenue target.  And we needed to hit the target.  For the company to reach its goals, the company couldn’t afford to pay incentives only to management.

Even with the lone executive’s disapproval, there was enough support to obtain profit sharing plan approval.

One Year Later

The results were in after the first twelve months.  The first year was an incredible success as the company exceeded its revenue targets while also cutting costs; truly a winning combination. Employees were finally part of the big picture and were compensated for their contributions.

There are many successful examples this profit sharing process works. Consider the example of Cynthia Bertucci Kaye, CEO of Logical Choice Technologies, Duluth, Georgia. Featured in Fortune Small Business magazine’s February 2009 edition, Kaye shared her painful experience of implementing and then killing a successful profit sharing plan.  She dismantled the plan the second year, wrongly thinking the company couldn’t afford it.

What Happens When You Kill a Profit Sharing Plan?

After writing $770 checks to nearly every employee the first year, the second year Kaye decided to invest profits entirely back into the company. “We posted average revenues of $37 million in 2006, but expenses were unusually high. With no motivation to save money and no email updates on the company’s financial situation, my employees became less careful about controlling costs,” said the CEO. “Losses topped $1 million that year,” according to Kaye.

Why Profit to Loss?

The CEO speculated the reason for the company’s losses was related to employees not feeling plugged into the business like the previous year.  Regular email communications stopped because there was not an incentive payment on the line for everyone. Never underestimate the multiplied power of all employees focused on the same goal. The combined force of employee heads, hands and hearts focused on a winning strategy is amazing.

Profit Sharing Plan Returns

“So in January 2007 I announced the profit sharing program would be reinstated,” said Kaye.  The results? According to Forbes, “It worked like a charm: Everyone found a way to contribute, from the receptionist who took checks to the bank daily – so the funds could start collecting interest as soon as possible – to the in-house travel agent who suggested that a colleague stay at a certain hotel because it was 25% cheaper than the others.”

Revenues hit an all-time high that next year (2007) and employees each received $1,300 incentive checks. Their business future looks brighter now that every employee has a vested interested in the financial performance of the company.

Note: At the time of this post’s publication a link was not available to the Fortune Small Business article, “Reviving Incentive.” When it becomes available, The People Group will provide the link.

Kevin Kennemer is founder of The People Group based in Tulsa, Oklahoma. Kevin is driven by his passion for company owners and their need to earn a profit, employees' desire for a positive and fulfilling work experience, and the community that benefits when both groups do well.

1 Comment

  1. Nancy Baker 15 years ago

    Whole heartedly agree with the article. Down deep, everyone wants and “needs” to feel apart of something that is bigger than themselves. Just as it is known that a homeowner, as a rule, takes more pride in the maintenance and upkeep of their property vs someone paying rent, an employee who has an emotional and financial stake in the growth of their company is more apt to look for ways to improve productivity, promote cost effectiveness and instill positive moral. Only an employee who lacks motivation, is content to do just enough to get by or takes no pride in their work and workplace, would not benefit by being a part of a profit sharing plan – and for any of the aforementioned personality traits, what good are they to you as an employee anyway?

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