‘Quiet quitting’ is among the latest trends making rounds in social media. More workers have grown disheartened with the lack of recognition from their superiors for going the distance in their work. These people are done making an extra effort and simply doing the bare minimum of what their job requires.
Despite its name, it doesn’t involve an actual resignation, but it may as well be. In recent months, the United Kingdom labour scene has been talking about the ‘Great Resignation’ after one survey revealed that one in five workers said they plan to leave their jobs next year. Some employers try to retain talent by raising salaries, but inflation has virtually negated its benefits.
Still, human resource professionals believe it isn’t too late for companies yet. It all boils down to company or organisation leaders giving their workers the recognition they deserve, primarily with a rewards system. Profit sharing is one potential approach.
Sharing A Company’s Success
Profit sharing adds a portion of the company’s profits to a stakeholder’s (i.e., from the top down) wages and benefits. The calculation varies by workplace, with profit allocation formulas considering factors like the worker’s age or P60-declared income. The result is an income that can potentially help workers get by these trying times.
The Institute for Public Policy Research (IPPR), a London-based think tank, calls profit sharing a form of ‘shared capitalism,’ whose potential can be realized upon fulfilling three conditions:
- The plan is open to the majority of the workforce, not just for managerial positions
- Performance-related bonuses consider more than an individual’s performance alone
- The workplace promotes a democratic culture concerning employee involvement
The think tank agrees that a profit share agreement is a good way to get leaders and employees on the same page. As it guarantees eligible personnel a share if a company makes a profit for a period, they’ll be more motivated to work harder to help the company reach that goal. It leads to leaders and employees working more closely, improving productivity.
Such motivation comes amid one downside of profit sharing: a company can’t disburse profits if it doesn’t make any for a period. It’s different from revenue sharing (which many often confuse for profit sharing), where stakeholders get a cut of the total revenue, including gains and losses.
Stakes Over Salaries
A unique advantage of profit sharing—or shared capitalism, in general—is that it inspires people to have a stake in the business. After all, their share of the benefits relies on the company making a profit in a particular timeframe.
Having a stake may be more valuable to employees than making extra cash. That’s what a 2016 study published in Labour Economics found after an extensive review of datasets from various sources. Such a sentiment causes them to feel more satisfied with their current jobs, reducing the likelihood of leaving.
One of the reasons for this may be attributable to a shift in the government’s tax-exempt profit-based incentive system over 20 years ago. It replaced approved profit-sharing plans with Share Incentive Plans (SIPs, also known as Schedule 2 SIPs). The new system exempts workers from taxes, provided stakeholders hold on to their shares for at least five years.
While an entirely different system, profit sharing remains a viable method of incentivising a company’s workforce, albeit no longer tax-exempt. The same study infers that the sentiment partly relates to the ‘warm glow’ of receiving free shares, which the SIP system allows up to GBP£3,600 in a given tax year.
Not For Every Business
As promising as profit sharing may appear at this point, it isn’t a one-size-fits-all solution. The IPPR says profit sharing makes sense for businesses with at least 500 employees. But is it ideal for small and medium-sized enterprises (SMEs)?
It all depends on the math, which business owners should do beforehand. Profit sharing entails substantial administrative costs, possibly too huge for an SME’s limited budget. For the record, SMEs can still employ other ways of incentivising their people, like free lunches or paid time off. But profit sharing may be out of reach, at least for the time being.
As mentioned earlier, the lack of profit in a given period is another caveat. It isn’t unusual for businesses to experience slow periods, affecting their revenue. Employees may grow dismayed upon learning that the company hasn’t made a profit despite their best efforts.
Conclusion
Current insights concur that profit sharing effectively maintains or improves employee retention. However, maximising its advantages warrants a conducive work environment that urges employees to take a more active stance in the business’s welfare. It also requires doing the math to ensure its cost doesn’t do more harm than good.
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