How Do Profit Sharing Plans Motivate Employees?
Companies implement profit sharing plans with the intention of motivating employees to work harder and produce better results. These profit sharing plans experience mixed results in improving employee performance. Some key components must exist in the implementation of the profit sharing plan for companies to see the desired outcome.
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Clear Rules
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In order for employees to be motivated by a profit sharing plan, management needs to state clearly the rules for participation. Employees need to understand what management requires from them to participate in the profit sharing plan. These rules may include employees working a minimum number of hours or specific goals for each department to reach. The rules may also include company-wide goals, such as earning a minimum level of net income or reaching a predetermined level of sales. Management may decide to incorporate different levels of profit sharing for different levels of achievement. Each level of achievement should be clearly identified to the employees along with the level of profit sharing associated with reaching each goal. Employees who understand the rules of the profit sharing plan will be motivated to reach their goals and participate in the plan. Employees confused by the rules are rarely motivated to achieve.
Culture
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Managers and supervisors work directly with employees and set the mood in their departments. Upper management needs to meet independently with the department managers and supervisors prior to launching the profit sharing plan. Upper management needs to sell these individuals on the success of the profit sharing plan so that they leave the meeting excited about it. Their excitement will travel to their employees and maintain the motivation to achieve the goals of the plan.
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Report Results
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Employees excited initially about the plan focus that energy into progressing toward the goals of the company and their department. As time passes, management needs to remind employees about the plan and show them the progress they are making toward their goal. Company meetings and newsletters make good venues for sharing news about this progress. As employees see the progress they are making, their motivation is renewed.
Payout
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At the end of the period, management needs to follow through and deliver on its promise to reward the employees with their profit sharing payouts. The profit sharing payout should match the promise set forth at the beginning of the period. When employees see the reward for their hard work, they will continue this motivation into the next year.
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