Basic economics suggest that employees respond to financial incentives. However, not all financial incentives are created the same. Usually doled out on the basis of merit or hierarchy, incentives like bonuses or commissions can be deceptive in the ways they reward.
Profit sharing, for all, when done right has the ability to empower all employees as it recognizes everyone’s contribution towards the company’s success – whether they’re an entry-level analyst or a C-suite executive.
Going Beyond Shareholders
Known as stakeholder capitalism, this trend recognizes that there are stakeholders beyond the shareholders. Employees are a big component of these stakeholder groups. In France, profit sharing is mandatory in companies which have employed 50 employees for 6 months. In the US, companies can be known as B-corporations, which are defined as for-profit companies, that are required to take into account the interests of shareholders and other stakeholders – like workers, the community and the environment.
Through profit sharing, companies can also start engaging employees in meaningful conversations about the company finances. Companies should not shy away from implementing profit sharing from fear that every year may not be profitable. Rather, they should start profit sharing in a phased manner so as to manage expectations.
Here are two examples that illustrate how Semco’s profit-sharing practice impacted its employees in real ways.
An Intern’s Tryst With Profit
The first time that Luis Fernando Moreira, from Semco’s Procurement Department, received a share of the company profits, he was just an intern. He had joined Semco through Projecto Crescer, one of the company’s popular CSR initiatives. Coming from a family of humble means, it was a crazy moment for Luis when he received three times his original salary as his share of Semco’s profits.
He was also among the employees who were given financial education: The HR department guided him on the importance of using this money wisely and investing it for the future. They explained a lot of concepts, from a financial point of view, like explaining how exactly the profit was shared in the first place. But they also touched upon the implication such money could have on their personal lives.
An Unexpected Return
It’s one thing to share your profits equally with all employees – without being limited by any criteria. But it’s an entirely different thing to share with even those employees (or interns) who were no longer around when the profits were split. That’s something not many companies would bother doing – but Semco did it. Even if Semco didn’t bother doing it, the intern wouldn’t have complained. Nevertheless, the company, in its concern about recognizing employee efforts, carried out this practice.
For instance, an intern worked at Semco for the first six months of a particular year and left the company in August. At the end of that year, calculations were made and the manager (under whom the intern worked) recalled the efforts of the intern during those six months. “He worked here, right? He also helped to participate, right?” Keeping that contribution in mind, the intern was contacted and was given a part of the profit that was proportional to the work he’d done – six twelfths, to be precise.
A Gateway To Bigger Things
The profit sharing model has a very positive effect on all employees, especially entry-level employees. It recognizes that all employee contributions towards the company’s success are of equivalent value. By combining this financial incentive with better education on how to use the money well, the company can empower employees to be motivated and productive. Besides, it makes employees at all levels feel valued and cared for, which in turn fosters a greater sense of belonging and happiness in the workplace.