A well-motivated and focused workforce is the key to achieving sustained improvements in profitability. And one of the best ways to motivate your workforce is to involve them in increasing profits and sharing in the results.

Improving the bottom line

When carefully implemented, a profit sharing scheme can help improve the bottom line in a number of ways by:

• Creating a profit culture throughout the organisation
• Keeping employees focused on constantly improving productivity
• Helping to reduce waste of materials and inefficient use of time
• Improving teamwork
• Helping to recruit quality employees
• Providing the motivation for key employees to stay

Downside?

A possible downside for owners and directors is that employees who participate in profit-sharing schemes tend to monitor more closely expenditure on their benefits, bonuses, and other perks, which they perceive to be reducing the size of the profit pie, and therefore of their individual slice. There also tends to be more pressure from employees to be able to influence decisions that affect the overall profitability of the business.

In an organisation that is truly committed to improving profitability, however, such increased interest from employees will not be a problem; rather part of the solution. If everyone from management down is rewarded strictly on the basis of his or her contribution to profitability, and if there are effective channels of communication through which employees can submit profit-improvement ideas, there should be no conflict or tension involved in introducing a profit sharing scheme.

Factors to consider

Before introducing such a scheme there are a number of factors to consider:

• Who will be eligible to participate?
• Will there be a probation period for new employees?
• How much profit is available for sharing?
• How will it be allocated?

The answers to these questions depend upon a careful analysis of the business's profit history, the extent to which it is capital intensive or labour intensive, and so on.

If you would like help in determining whether a profit sharing scheme would benefit your business, and if so how it should be structured and implemented, we would be glad to assist.