How to Develop a Productive Profit-Sharing Plan

Should you share the wealth? What you need to consider before implementing employee profit-sharing

Written by PROFIT Staff

Linking compensation to the financial performance of your business is a good way to incentivize employees. But there’s no one-size-fits all approach to sharing the wealth. Whether or not a profit-sharing program makes sense for your company depends on a host of factors, including your industry, company size, and headcount.

Recently, we asked business owners what makes their profit-sharing programs successful. Here are some of our favourite responses.

Be transparent

“We used to take a percentage of our earnings and pro-rate it across our employees. But people who did a magnificent job in the last quarter might get higher rewards than somebody who’d been consistent all year. We developed a system that looked at the employee’s objectives and the company’s objectives. At the beginning of the year, we sit down with each employee to make them aware of what we’re measuring and how much they could make if all objectives are met. We keep people posted, and at the end of the year, we tell them exactly what the profit was.”
—Larry Goodfellow, chief financial officer and co-owner, Insightrix Research Inc., Saskatoon


“A lot of companies work with a standardized grid. Ours is a little more flexible, because we feel that if you’ve gone above and beyond your job description, you deserve a little extra. The more employees increase their skill levels and responsibilities, the more they’re eligible for. We do performance reviews and talk to supervising managers regularly. We keep those notes throughout the year, so we understand the effort employees are putting in. At times they can feel they’re not appreciated. You can praise them as many times as you want, but at the end of the day, dollars and cents help them and their families. We have to express our appreciation that way.”
—Kevin Stemmler, co-owner, Stemmler Meats, Heidelberg, Ont.

Brag about it

“We always have healthy competition within our branches and between staff, but now everybody wants everybody else to succeed at a higher level because they know they’re all going to benefit down the road if the company does well. We have a kickoff every year, and we all go away to Niagara Falls overnight. When we talk about our company, even in our presentations to our clients, we say employees are owners in the organization, so our workers care more about the business. They’re more willing to go that extra mile for our clients.”
—Teri Scott,€‰president, Peoplesource Staffing Solutions, Toronto

Any industry will do

“I used to be in the automotive industry, which is very big into profit-sharing with employees. I took that and brought it to my business of window engineering. Every year we take 10% of the profits and share it with all employees, rather than do an annual bonus. When we are meeting with employees to discuss the program, we go through what they did in the year, but it’s not like the formal review you would have every year for a pay raise. It gives everyone a sense of ownership in the company. Everyone wants to get more involved as opposed to just coming to work every day, doing their task and going home.”
—Chris Liberta, president, State Window Corp., Vaughan, Ont.

Adapt as necessary

“It’s important to continually tweak your compensation program to appeal to employees, and based on the economic climate and the stage your business is in. We have a profit-sharing program for all employees. At the management level, people are excited about it because it’s unusual in our industry (which is hospitality). But at the staff level, that’s not what they’re driven by. We’re finding that listening to staff and designing programs that are meaningful to them is more beneficial than pure profit-sharing. So we provide free wine-education master classes, and we teamed up with ATB Financial to provide financial package programs—free bank accounts, incentives on credit cards and discounts on mortgages and loans. It’s about listening and giving them what they want.”
—Phoebe Fung, proprietor, Vin Room and VR Wine, Calgary


Does your company offer a profit-sharing program? Would you ever consider implementing one? Share your thoughts and experiences using the comments section below.

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