Profit sharing's effect on employee productivity and business performance

¶ … profit sharing. The writer examines the history of the concept and whether or not profit sharing improves productivity. There were 10 sources used to complete this paper.

The economic slump in America the last few years has been counter productive for employee morale. The workers who have faced lay offs, pay reductions and removal of overtime are having a hard time finding a reason to work hard and stay focused on productivity. When the slump is over, and the economy picks up as it historically does, there will be more jobs than workers and this will present a whole new problem with productivity. Regardless of the circumstances businesses nation wide are looking for ways to increase the productivity that is being put out by their employees. One of the methods being used to do this is profit sharing. Profit sharing is something that companies offer across the nation. The way each program is set up may vary but the concept is still the same. If the company makes more the employees make more, therefore it behooves the employees to crank up the productivity and the quality of the product or service they represent. The success of profit sharing has been questioned for years. Business owners wonder if it is really worth their while to give up some of the profits in the hopes it will make the workers feel they have a stake in the company's outcome. Profit sharing is a plan that can backfire by costing the business money with no return, or it can be the prod that spurs the employees to increase profits by increasing productivity. It is a program in which it either helps or it hurts with no in between.

CHAPTER ONE

NEED FOR PROJECT

The businesses who are participating in profit sharing need to know if they are wasting their time and their money, while the businesses that are not offering a profit sharing program need to know if it is a program that they might benefit from. These are the two top reasons for studying the success rate of profit sharing programs in various types of businesses. The problem is that there are outside variables contributing to the differences that are being seen in bottom lines both with and without the profit sharing plans. The profit sharing plan that is being used may or may not contribute to the increase in productivity. Conversely the slow down in productivity or bottom line numbers may not be because of a lack of profit sharing. This project is going to determine whether profit sharing is successful in the endeavor to increase productivity at a business.

Profit sharing programs are popular because they offer more flexibility than many pension plans and they offer the chance to have a better return depending on the company profits that period.

THE HYPOTHESIS

The hypothesis for this project is that profit sharing programs are effective tools for the increase of employee productivity and that offering them to all employees with a graduated profit percentage dependant on longevity with the company helps increase company loyalty.

DEFINITION OF TERMS

Profit sharing: A program when a company provides the profits for the sharing of the workers.

Population: This is the large group from which the sample was drawn for the study

Sample: This is the smaller group that is drawn from the large population as participants.

Literature review: This is a discussion about studies that have already been completed in related areas and what they have concluded.

Variables: These are the controls that are implemented on the project

Data: This is the study information provided by the participants that will be compiled and studied for the purpose obtaining a study result.

Survey: The method of collection for the purpose of this study

CHAPTER TWO

LITERATURE REVIEW

There have been many articles and studies published regarding different aspects of profit sharing programs. Because of their popularity and their various elements there are many things that can be studied in their existence. They have been offered in good financial times and in bad financial times and they are believed to cause employees to increase their quality of work and their productivity by many experts who recommend their offering.

The plans differ in many ways including how they are offered. In some cases they are offered in place of pension plans and in other cases they are offered along with pension plans.

Profit-sharing plans have long been popular because they offer more flexibility than pension plans and are exceedingly less expensive to administer. However, a new variation of the traditional profit- sharing plan is the age-weighted profit-sharing plan, which allows the use of age as a major factor in calculating contribution allocations. The traditional profit-sharing plan normally allocated contributions on the basis of salary. Since older key employees and owners have less time to accumulate retirement savings, the age-weighted plan takes age and salary into consideration when allocating contributions among all participants. This allows a larger percentage to be provided to the older employees, but within a framework that furnishes all participants with relatively equal benefits."

There are many different ways that a profit sharing plan can be structured for the purpose of increasing productivity. The motivation for the older employees is often gone. They have been working for a lot of years, they have often managed to pay off their homes and their other large debts which leaves them with a relatively simple and inexpensive cost per month to pay bills. It is a problem because as they near the age of retirement they might not be as motivated as they once were. They have often climbed the career ladder whether it was in management or on the line and they do not have much hope of getting to the top if they have not already gotten there. One study looked at the possibilities that re produced with age weighted profit sharing programs. This allows the older employee to gain benefits even with the short time they still have left in the workforce. "An age-weighted plan is similar to a traditional profit-sharing plan in the following ways. Contributions are tax deductible up to 15% of net compensation of the participants covered by the plan. Annual contributions are discretionary, and employers can even skip a contribution. The same participants are covered under both types of plans, and participant direction of investments is available. Top-heavy rules and Section 415 contribution limits apply. Vesting and most other plan provisions can be the same as they would be with a simple profit-sharing plan."

Another study worked to answer the question about the usefulness of profit sharing programs in the workplace. Using the department of human resources to address the question, profit sharing programs were examined and analyzed to see what if any benefit would be realized through their use.

The study examined many aspects of human resource management and the productivity that the programs had on the bottom line. One study looked at incentive plans for high level management executives and asked whether or not incentives actually better the bottom line by increasing productivity. The study used

Contingency predictions. In contingency predictions, the relationship between the use of specific employment practices and organizational performance is posited to be contingent on an organization's strategy. The behavioral perspective (Jackson et al., 1989) implies that successful implementation of business strategy relies heavily on employee behavior. An organization's strategy necessitates behavioral requirements for success, and the use of HR practices in the organization can reward and control employee behavior. Therefore, the organization should implement HR practices that encourage the employee behaviors that are consistent with the organization's strategy. This alignment of strategy and HR practices allows organizations to achieve superior performance. "

Other studies have also hinted that profit sharing programs will benefit the bottom line financially. In this study a total of 84 companies were researched and their human resource techniques were rated and categorized.

This study also concluded that profit sharing may be an active part of success, but like the previous study it did not separate it out form the other incentives being offered, thereby making it difficult to determine if it was the profit sharing program or some other aspect of the total offered package that was successful. This study took the recruitment package offered to hopeful hires and looked to see which programs were successful. The data was collected by survey and the population and sample again came from the banking industry. The survey measured the hiring success based on the recruitment methods being used.

The study was a solid foundation for the future studies of profits sharing plan. The conclusions provided a backdrop for more in-depth studies into the profit sharing question.

Chapter Three

ANALYSIS OF DATA

The studies that have been published about the use of profit sharing to increase productivity, by and large point to a positive reaction. The studies provide an understanding as to how employees react to motivators being offered by their employers. Conclusions can be drawn based on the reactions and answers of the survey that were filled out regarding the willingness to put out the extra effort when it comes to production. The studies are all encompassing in that they evaluate the question in several settings. Human resources, economics and other factors are all analyzed for the purpose of seeing what plans work. The majority of studies that have been done do conclude that things such as profit sharing programs are an effective measure to improve productivity. The employees try harder because if they try harder and the company does better financially the profit share will be bigger. In addition many profit sharing programs take the place of pension funds. This is also a driving force of the motivating factors to get employees to try harder when it comes to production or service.

THE STUDY

This study is designed to test how effective profit sharing programs are in productivity of a business. The study will exclude all other types of employee incentives and only study the effectiveness of profit sharing programs for the purpose of increasing productivity.

PARTICIPANTS

The participant population will be derived from organizations that have more than 25 employees and less than 200. The reason the researchers chose a cut off of 200 is because the large companies may not have time to send the form back and it will further dilute the study. The population will be drawn from the four areas of the nation so the purity can be trusted and it won't be a measure of only one style of societal business. The population will draw from a nationwide group to insure the purity of the results. The sample will be removed rom the population as follows. Each third respondent will be removed and set in the data pile. This allows for a completely random study of results and surveys. It will be divided by area however. Once the studies are collected they will be placed in one of the four areas of the nation. The third respondent from each stack will be taken for the survey. The other surveys will not be discarded however because their information could prove useful for future studies. Before any of the surveys are selected as participants all surveys that are tainted or not pure will be removed. This means that any survey which does not have all of the questions answered will be removed as will any survey that has more than one answer marked on any given question. This will help maintain the integrity of the survey because it will be sure that every single participant will have identical answer quotient.

METHODOLGY

The method that will be used will be a survey questionnaire. There are several reasons this method was chosen. Other methods were also discussed and discarded. One of the methods that was examined and then decided against was the in person interview. While in person interviews serve an important function in the study of people in this instance the researchers had concerns that the interviewer might influence the participant with their body language and actions. This study does not need to analyze reactions therefore the interview method was ruled out as a possible method for this study. The in person interview was also ruled out because of its cost and limitations. A survey online and through the mail will afford thousands of companies to be asked the study questions. It can effectively reach every corner and city in America. An in person interviewer will cost to much to have in every area of the nation. It was ruled out for those reasons and the survey was decided on. The survey will have general information listed on it so that the researchers can get a list of company sizes, areas of the nations etc. This will also be important information for future studies. The participants will also be informed that their results may be used in future studies. The survey will be presented through the postal mail as well as online to provide ample opportunity for those who wish to participate to be able to do so. The questions on the surveys will be identical online and in the mail.

The survey will be sent out to 5,000 companies that are randomly picked from a national data base of companies registered in their areas. The surveys will have a shelf life of three months and after that time any survey that comes in will be considered dated and removed from the study. The survey will provide questions in a yes or no format and it will also provide questions that will allow write in answers.

ANALYSIS

Once all of the studies are compiled they will be analyzed in the following manner. The results from each question will be entered into three data bases. One data base will be a general data base with no criteria attached to its content. The second data base will be divided company size and the third data base will be designed by what area in the nation the survey is from. This will allow the researchers to determine patterns, area preferences and other things that are not necessarily a part of the study but will be useful information for future studies. The survey will have 20 questions and will be designed to target the exact relationship between profit margins and profit sharing programs. The results will be compiled and percentages will be determined and dispersed.

CHAPTER FOUR

CONCLUSION

American businesses are struggling to find a way to keep the employees motivated. With the economy in such a slump it is becoming more difficult to make that happen. When the economy is in good shape the same problem is here but for different reasons. The need to motivate employees is a universal problem. There are several avenues that can be taken and one of them being looked at is profit sharing programs. Profit sharing is a program in which the employees share a piece of the profit as well as receive their individual paychecks. Profit sharing is used to encourage productivity, because it is based in the premise that if the company does well so does the employees. Because of the many variables in the economy and the business world it is difficult to determine whether profit sharing programs actually have a positive impact on productivity. The literature points to an affirmative but there are often other factors intertwined in the study. This study proposes to exclude all other avenues of productivity encouragement and studies profit sharing programs alone.