Why share profits with your employees? 2 reasons:
- It helps with retention and attraction, and
- It boosts productivity.
Given a choice between working for an organization that shares its profits and one that does not, most people will choose the one that rewards their efforts. “Study after study shows that workers belonging to ESOPs and group-based pay schemes tend to identify more strongly with the firm than those on standard fixed-pay contracts,”* states Harvard Business Review, based on a huge program of research by the National Bureau of Economic Research and similar studies in the UK and elsewhere.
Organizations used to use piece rates to reward production. But with the advent of team-based production systems, plus types of work that don’t lend themselves to piece rate mentality, organizations have moved to rewarding the workforce for net gains in profits. HBR says, “such plans can and do work…when combined with supportive management practices. This research found that three of the most prevailing concerns about the efficacy of team incentives were more myth than reality.”* For example, workers in profit-sharing organizations apply social pressure to slackers in their work group so that they do their fair share or leave the company. And workers in profit-sharing organizations tend to work harder. This concept applies equally well to non-profits – they can share their surplus with their workforce.
When I was creating a class on Lean for the workforce of a heavy manufacturer, I met with a group of owners – who were from all levels and areas of the company. A production worker in that group asked the kind of insightful questions that I would normally have expected from an owner, not a production worker. He was thinking like an owner because he was, indeed, an owner, even though his job was on the factory floor. How much more productive and effective would your workforce be if they thought and acted like owners, all the time? And what would that do to your bottom line?
Harvard Business Review, reprint 161213, December 13, 2016