There are many reasons, and profit sharing is surely NOT one of them, but I think it is still an idea worth considering. In this article, I’ll share with you my experience with a simple implementation of profit sharing.
My definition of profit sharing
Profit sharing is a simple system that is based on dividing X percent of company's net profit among all employees in the company. The amount should be equal for everyone who has worked through the whole quarter. Seniority doesn’t matter. Everyone gets the same amount of money. While it is easy to say, it is definitely much harder to implement. As you probably know, every benefit system can be cheated, but here is the trick - profit sharing is not one of them!
There are only three simple rules:
- An employee needs to work the whole quarter
- If the employee works part-time, he/she will receive proportionately less money and the remaining sum will be divided once again
- Profit sharing takes place only when all the invoices are paid
What about advantages?
Profit sharing is neither a gift nor a bonus. If the company makes profit, an employee will get a proportionate amount of money. If the company doesn’t make profit, there won’t be anything to share. On top of that, there are no complicated legal matters, as profit sharing is only an additional item on an employee's bill.
Let's find out some disadvantages
To start with, profit sharing lowers the results of the company. Second, cash flow will be worse, which is a real problem for small businesses. Finally, you will probably hear that seniors should have gotten more… OK… but not all seniors want to do tasks that juniors do. That’s why I decided to share the profit equally. I believe that everyone in the company has an impact on the company's growth.
How to calculate profit sharing?
The screenshot below shows how you can easily achieve it.
I prepared a sample spreadsheet here. Feel free to test/use it - all feedback is appreciated.
Is this idea worth implementing in the company?
Up to the point of writing, we had only three iterations of profit sharing. Two of them happened before the pandemic (in 2019). We approached the idea again this year. It's still hard to say how profit sharing increases the feeling of ownership. For sure it is worth trying and we will definitely continue sharing our profit in the next quarters.
What do you think about profit sharing?
As a Manager / Founder / CEO, would you be willing to implement something like that in your company? As an employee, do you see value?