'By receiving a share of our profits, employees are motivated to invest even more in their roles,' says expert
In a world where workers are looking for higher pay, better benefits and a deeper sense of belonging within their company, profit sharing may be the answer, according to an expert.
Profit-sharing – a compensation strategy where employees receive a share of the company’s profits – can have a profound impact on employee morale and retention. Beyond being a financial incentive, it creates a culture of ownership and alignment, benefiting both employees and employers alike, says Cassie Van Tol-Walker, Safe Software’s senior HR manager.
“Profit-sharing benefits employers by fostering a stronger sense of ownership and alignment among employees,” she says in an email to Canadian HR Reporter. “When team members see a direct connection between their efforts and the company’s success, they are more motivated to contribute to that success. This can lead to higher productivity, greater collaboration, and a stronger commitment to organizational goals.”
A previous report from Capterra noted that employees want employers to shoulder at least part of the cost of going back to the office.
Profit-sharing can also enhance employee retention and attract top talent “as it demonstrates a company’s dedication to rewarding its workforce fairly and transparently,” says Van Tol-Walker.
When it comes to motivating employees to do their best and attracting top talent to a company, it can start and end with a compensation and benefits strategy, according to another report.
Realizing potential benefits of profit-sharing
Safe has seen the benefits of profit-sharing come to life within their own organization, says Van Tol-Walker.
The technology company has shared 20 per cent of its profits with employees “since the beginning,” she says.
Safe offers bi-annual profit-sharing bonuses to all permanent employees, “fostering a sense of inclusiveness and rewards everyone as the company grows,” she says. And the program ensures “everyone’s efforts are recognized fairly”.
“We’ve seen a positive impact on both morale and retention, as employees feel that their contributions are valued beyond their daily work,” says Van Tol-Walker. “By receiving a share of our profits, employees are motivated to invest even more in their roles, knowing they are integral to Safe’s success. This sense of recognition and reward has helped build loyalty and enthusiasm, making it a meaningful factor in employee retention.”
Overall, 95 per cent of employers plan to award a year-end bonus to their teams. And nearly two in three (65 per cent) plan to provide a bonus higher than last year, finds a Robert Half survey.
How do you implement a profit-sharing plan?
It's entirely up to the employer to decide which type of profit-sharing plan (PSPs) to use. And most typically fall within one of the following types of PSPs, according to Paychex:
- Cash-based plans: Employers make direct cash payments to an employee's account as part of their profit sharing.
- Deferred plans: Like a defined contribution plan for retirement savings, employers contribute to an employee's retirement account, but employees only access it when they retire or leave the organization.
- Combination plans: This is typically a mix between cash plans and deferred plans. Employers can make cash contributions to an employee's retirement account and contributions to a deferred plan.
- Employee stock ownership plans (ESOPs): Employers give their employees shares of company stock instead of cash.
To implement a successful profit-sharing program, transparency is essential, says Van Tol-Walker.
“It’s also important to design a structure that is fair and proportional, ensuring that all employees feel valued. Regular communication about the company’s financial health and the program’s outcomes helps build trust and alignment. Lastly, employers should make profit-sharing part of a broader culture of recognition, tying it to their overall mission and values to reinforce its significance.”
