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Tips for introducing profit sharing as a reward


For some companies, particularly lucrative companies with stable profits, profit sharing is a great benefit to offer employees. If you have met with the executives of your company and you have decided that profit sharing is a good option for your company, the next thing to do is schedule at time to present profit sharing to the employees. Below are some tips for how you might go about introducing profit sharing.

Define profit sharing-there are misconceptions about profit sharing so you will need to carefully explain what profit sharing is. One of the most common misconceptions about profit sharing is that profit sharing and stock options are the same thing. Explain to your employee that profit sharing is a payment made every year (or every quarter-what ever works for your company) and that a proportion of the company's profits will be divided up among all employees. They should understand the difference between profit sharing and bonuses. For example, profit sharing is not based on merit. The only thing that you need to do to receive your share of the goods is maintain employment. When you make the presentation, give plenty of examples. Show what a million dollar year looks like, what percentage of that profit will be shared with employees and what each employee could expect to receive. Then do the same thing for a one hundred thousand dollar year.


Present options for payment-most companies that offer profit sharing as a reward tack the money onto a paycheck at the end of the year. Other options might be worth exploring, for example, the funds from profit sharing might be allocated directly to a 401K or some other type of account. This might be a better deal in the long run because the monies in a 401K are not taxed the same way as income is taxed. The funds in a 401K also grow and collect interest while bonus money gets spent on nice dinners and box seats at basketball games. Give your employees options for how they can receive their money and make sure that they know how to allocate their own funds.

Use profit sharing to promote teamwork-when you are presenting profit sharing to your employees emphasize that the better the company as a whole does, the better each individual does. You want to use profit sharing, not just as a benefit but also as a teambuilding tool. Really help people to understand the team concept and that every employee benefits when the company does well. You might also point out the inverse, that when the company does poorly, every member of the team loses out. One of the best things that can come out of offering profit sharing is teambuilding.

Implement some sort of a visual aid-one problem with profit sharing is that when it is first introduced people "get it" and are all about teamwork and striving to help the company to succeed. It doesn't take long for everybody to forget about the teamwork aspect and just start to expect a big fat bonus from time to time. To help employees to see profit sharing as a reward for hard work rather than an entitlement, build some sort of a visual aid. Several times a year, or whenever possible have your accounting department estimate the year-to-date profits. You can have a big thermometer or some other visual aid that rises and falls as the company's profits rise and fall. Put the visual aid some place where everyone will see it. Common areas like cafeterias work well for this. You can teach people a formula to estimate their stake in the profits. This should help keep people motivated and psyched for profit sharing.

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