One question that comes up often from our client’s is, “How do I distribute profit sharing to my employees?”
In the past, some owners have simply provided arbitrary bonuses based on how they felt on the day they had their checkbooks out. Others have applied complicated formulas including deductions for process and procedures not being properly followed. While the business owners’ intentions were good, ultimately both extremes proved to have little positive value.
Top three factors of profit sharing distribution
- Longevity – Base your profit sharing on seniority and honor the loyalty of your employees. Some may argue that you may have some non-productive people that have just been employed by you for a long time. If that is the case, it may be time for some difficult decisions resulting in those employees looking for other work. However those productive employees that have been with the company several years, have done a great job and continue to add great value, deserve to be rewarded for their longevity.
- Attitude – The employee has to be a team player. They have to go above and beyond what you ask them to do and should be looking at ways to help and improve the company. A great example of this is at one of our clients, Addison Biological Laboratory, Inc. One of their managers, Karlin Yaeger, and a group of employees have started an internal “Creative Team”. Even though they do not get paid extra for this time, their goal is to come up with creative ways to improve the company morale, processes and profitability.
- Profitability – I’m always surprised at the generosity of some owners that want to give it all away, even when there is nothing to give. While this should go without saying, if the company is not profitable, there cannot be profit sharing. As part of your annual budget process, determine at the beginning of the year a simple formula for computing the percentage of profits you plan to share.
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Your team members are a crucial component of your success. Paying your staff what they are worth and providing for them should be a high priority.
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