Frequently Asked Question: What is profit sharing?
Profit sharing is a type of gainsharing. At the end of each quarter or fiscal year, an employee gets a percentage of the company’s profits based on a number of factors. These factors vary from company to company but some are employee performance, company profits, stock prices, department performance, and the general health of the industry. Not all industries participate in profit sharing and some employee groups have even turned down offers by employers to set up profit sharing programs because of the belief that profit sharing is really more beneficial to the employer than the employee. Some groups believe that profit sharing just allows the employer to lower wages without losing face. Others believe that profit sharing is too risky because even though in a good year profit sharing is obviously beneficial, over a prolonged period of low industry profits, employees may prefer slightly higher or steady wages to speculative or non-existent profits from which profit sharing is calculated. For example, Canadian autoworkers and American autoworkers take opposing stances on the issue of profit sharing. The Canadian Auto Workers union will not accept any type of profit sharing because the union members believe “profit-sharing is an effective means of transferring business risk from investors and managers to workers – even though the actions of individual workers can rarely have any significant impact on a firm’s financial performance” (The Corporate Ethics Monitor, Volume 12, Issue 5, page 75). American auto workers on the other hand accepted profit sharing in the 1980s, presumably for reasons such as employee ownership and increased income. Since then, some U.S. auto workers have received large bonuses through profit sharing programs whereas others have received nothing, depending on the success of the company during that fiscal year. The Canadian Auto Workers union (CAW) says it wants to avoid this fragmentation of workers because it weakens the bargaining power of the union. CAW has chosen instead to focus on wage increases and “has actually received, on average, more total cash income, even compared to U.S. workers at more profitable automakers” (The Corporate Ethics Monitor, Volume 12, Issue 5, page 76).
Keeping in mind that this is the opinion of one group and does not represent the final say on profit sharing, it is important to note that profit sharing may not be appropriate for all industries, especially for those that are high-risk and face highly variable yearly profits. As with all employee programs, employee consultation should occur before implementing new programs. That being said, profit sharing has been highly successful in many industry, particularly in the financial industry, and highly beneficial to many employees.