Profit Sharing Incentives

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Introduction

During global financial crises people seldom have the means or resources to recover from financial hardships such as job loss (Contemprary issues in human resource management: Case studies, 2011). Studies have shown that organizations that share profits with employees are more successful than organizations that choose against sharing profits with employees. All organizations have one ultimate objective, and the objective is to maximize productivity. In order to fulfill this objective, organizations require that employees are fully committed, engaged, and above all, motivated. In finding ways of incentivizing employees to contribute more vigorously, managers have found that allowing workers to participate in the organizations’ financial conditions is quite an effective strategy. This drives employees to work harder and more efficiently given that higher output will translate into higher profits and higher employee compensations (Contemprary issues in human resource management: Case studies, 2011). Profit sharing is the most commonly used corporate wide pay-for-performance plan in today’s organizations; it is an incentive program that rewards employees based on the entire organization’s performance (Gomez-Mejia, Balkin, & Cardy, 2010).

Profit Sharing Build Assets

Throughout the years, organizations have been creating asset-building programs for their top-management. However, they have failed to follow suit with their lower-level employees. It is often argued that in order to attract highly skilled workers, companies have to offer extra benefits, including though not limited to stock options (which is a form of gain sharing). Such a benefit is considered complementary to an increase in salaries, which ultimately results in organizations being able to attract the desired labor. This, however, is a bonus that is seldom offered to the lower-level employee (Contemprary issues in human resource management: Case studies, 2011). According to Roomkin (1990), some common types of gain sharing, including profit sharing and stock owner (ESOPs) rewards, are linked to individual contributions and can be lucrative for both employees and organizations if properly controlled and understood. Given the results that such an approach to motivating employees has yielded it becomes clear that monetary incentives are crucial in getting employees to be more productive and efficient, thus contributing to an organization’s survival and success (Ford II, 1961). Furthermore, recent studies have shown that sharing financial information as well as profits with lower-level employees also helps boost both efficiency and profits (Heymann, 2010). When lower-level employees and top-management share financial information and gains, they are both motivated to over-perform. If they both manage to increase their respective productivities, the organization’s overall output and profits will increase as well, thus increasing their relative compensation.

Longevity

These gain sharing plans are created in a way that ensures and encourages longevity within an organization. The underlying belief is that investing in an employee has an associated financial gain for the company, one that exceeds the organization’s initial investment and ultimately leads to a long-term commitment (Contemprary issues in human resource management: Case studies, 2011). Turnover, or employee replacement, is extremely expensive for an organization. The cost to recruit and train new, inexperienced personnel is a financial burden that organizations prefer not having to carry. In order to avoid having to recruit and train new personnel, organizations find it more practical, efficient, and economic to empower their employees at all levels, thus improving working conditions and lowering turnover (while at the same time increasing productivity). Organizations encourage long-term incentives by offering gain sharing plans for employees that ultimately benefits them in a way that is proportional to their seniority and tenure within the organization (Contemprary issues in human resource management: Case studies, 2011). With the option of a gain-sharing plan, lower level employees are thus motivated to act as managers within the organization, encouraging their peers to increase productivity and total quality for their future benefit.

Well-Established Businesses

In order for an organization to be labeled as a well-established business, it must have been providing service for a long time and/or be successful in day to day operations. The Great Little Box Company was a purchased in 1982, and it was a failing Vancouver box-manufacturing company. The Great Little Box was, from the beginning, not a well-established organization and clearly not successful. The Great Little Box owners understood that gain-sharing plans motivated its personnel to maximize productivity. The company began profit sharing program in 1991 because in the company it was believed that employees would be dedicated working hard, in the event that they feel “they matter and their work matter” (Heymann, 2010). By 2005, the fairly new organization had grown to the largest sheet metal with $23.4 million in sales. The Great Little Box Company has benefited immensely from the perks of involving their personnel immediately in the sharing of financial information and profits. The Great Little Box Company is an excellent example of gain sharing of fairly new organization that is not well established.

Conclusion

It has been concluded that organizations are more profitable when they involve their entire staff in gain sharing programs, as compared to conventional organizations. When organizations involve and educate all staff members, the entire staff develops a sense of ownership, a sense of loyalty towards their respective organization. This sense of ownership increases productivity, which, in turn, carries over into profit and encourages staff to stay with their organizations for extended time; thus, allowing organizations to regulate and decrease employee turnover and overall turnover costs. Organizations that foment employee empowerment make them feel a sense of ownership through a combination of goals and objectives. This shared vision ultimately benefits for all, since employees and the organization as a whole will have a higher probability of succeeding, as overall performance improves and profits will increase ostensibly (Contemprary issues in human resource management: Case studies, 2011).

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