Profit Sharing: A Motivational Tool Ignored by Companies
25 May 2009
Read by 1967 persons
Companies still prefer classic methods like a 13th month salary or client-based bonuses.
Employees, on the other hand, focus on their fixed salaries.
Perhaps legal frameworks and tax incentives are needed to encourage this practice.
Stockholders of listed companies are pleased. In 2007, these companies made a total profit of over 27 billion DH, a 30% increase compared to 2006. A large portion will be paid out as dividends.
Top management will undoubtedly be rewarded for their contributions. But what about other employees? Logically, they should share in the profits, but money is a sensitive topic in Moroccan companies. It's difficult to find a manager willing to speak openly about profit sharing.
This practice isn't common. Except for some large companies, especially subsidiaries of multinationals who have inherited practices from their parent companies, few have adopted such a policy. Any reward after a successful year is at the management's discretion, deciding when, how much, and how to distribute it—often without predefined criteria. This, instead of motivating, creates frustration and potential conflict.
In short, compensation policies rely on traditional tools, and any additions to contractual salaries are often limited to a 13th month or variable pay, often commissions for certain jobs.
This inaction reflects a lack of imagination from both managers and employees focused on fixed salaries. Even individualized salaries struggle to take hold, as the status quo is widely accepted.
However, profit sharing or employee stock ownership, which indirectly allows employees to benefit from their performance, could incentivize them to contribute more. Some listed companies have chosen the second option, not for permanent employee ownership, but to allow them to realize substantial capital gains after a predetermined period. These companies deserve credit for trying.
These practices are common in developed countries (Europe, USA). For example, in France, profit sharing is mandatory for companies with over 50 employees. A portion of the profit is redistributed to employees, according to a formula set by law. This sum is called the "special participation reserve."
Participation is the subject of an agreement between the company and employees or their representatives (union delegates, elected staff, or works council). The agreement specifies how the reserve is distributed among employees. Distribution can be proportional to salary, length of service, or uniform.
In France, they propose integrating interest payments into retirement calculations.
These funds are unavailable until April 1st of the 5th year. There were early withdrawals in 1994, 2004, and 2005. The current French government wants to use this again to counter the decrease in purchasing power.
Profit sharing is a voluntary, collective compensation method that allows companies to reward employees for company performance. "It's a motivational tool that involves employees in their company's success through profitability, quality improvement, and productivity goals. It's contingent on achieving a company objective (turnover, profit, etc.) and can't be considered a salary. Its attainment isn't automatic, but linked to achieving an agreed-upon objective or performance," explains Houcine Berbou, senior consultant at LMS ORH.
All companies can implement a profit-sharing agreement, regardless of size, activity, or legal form. The profit-sharing bonus is exempt from social security contributions and taxes. The employee can choose to receive the sum immediately or invest it for 5 years. For the company, profit-sharing payments are deductible from the corporate income tax base and exempt from payroll taxes.
Under labor law, they aren't considered part of the salary. They don't factor into minimum wage calculations and aren't subject to social security or retirement contributions. For employees, the profit-sharing bonus is also exempt from social security contributions and income tax if paid into a company savings plan (PEE).
Recently, the French government suggested integrating profit sharing into retirement calculations to improve pensions.
A survey of 60 French companies across various sectors shows that implementing such compensation tools based on employees' daily tasks results in performance 20-30% higher than companies without such agreements. The indicators used are often financial (70-80% relate to results, turnover, gross margin). But qualitative criteria, often related to the work environment, are also becoming important (in 40-50% of cases, on productivity levels, quality, attendance). Regarding the social climate, 92% of companies believe it's improved by profit sharing.
Legislation in this area isn't necessary; it's up to companies to make proposals.
Employees respond better when they know their investment (their effort) will pay off. Legislation, as in France, won't help, as the legislature already struggles to enforce labor law. Companies should make proposals. Employees also need to understand the benefits of such systems.
Posted April 15, 2008
La vie éco, April 11, 2008
lavieeco.com
Employees, on the other hand, focus on their fixed salaries.
Perhaps legal frameworks and tax incentives are needed to encourage this practice.
Stockholders of listed companies are pleased. In 2007, these companies made a total profit of over 27 billion DH, a 30% increase compared to 2006. A large portion will be paid out as dividends.
Top management will undoubtedly be rewarded for their contributions. But what about other employees? Logically, they should share in the profits, but money is a sensitive topic in Moroccan companies. It's difficult to find a manager willing to speak openly about profit sharing.
This practice isn't common. Except for some large companies, especially subsidiaries of multinationals who have inherited practices from their parent companies, few have adopted such a policy. Any reward after a successful year is at the management's discretion, deciding when, how much, and how to distribute it—often without predefined criteria. This, instead of motivating, creates frustration and potential conflict.
In short, compensation policies rely on traditional tools, and any additions to contractual salaries are often limited to a 13th month or variable pay, often commissions for certain jobs.
This inaction reflects a lack of imagination from both managers and employees focused on fixed salaries. Even individualized salaries struggle to take hold, as the status quo is widely accepted.
However, profit sharing or employee stock ownership, which indirectly allows employees to benefit from their performance, could incentivize them to contribute more. Some listed companies have chosen the second option, not for permanent employee ownership, but to allow them to realize substantial capital gains after a predetermined period. These companies deserve credit for trying.
These practices are common in developed countries (Europe, USA). For example, in France, profit sharing is mandatory for companies with over 50 employees. A portion of the profit is redistributed to employees, according to a formula set by law. This sum is called the "special participation reserve."
Participation is the subject of an agreement between the company and employees or their representatives (union delegates, elected staff, or works council). The agreement specifies how the reserve is distributed among employees. Distribution can be proportional to salary, length of service, or uniform.
In France, they propose integrating interest payments into retirement calculations.
These funds are unavailable until April 1st of the 5th year. There were early withdrawals in 1994, 2004, and 2005. The current French government wants to use this again to counter the decrease in purchasing power.
Profit sharing is a voluntary, collective compensation method that allows companies to reward employees for company performance. "It's a motivational tool that involves employees in their company's success through profitability, quality improvement, and productivity goals. It's contingent on achieving a company objective (turnover, profit, etc.) and can't be considered a salary. Its attainment isn't automatic, but linked to achieving an agreed-upon objective or performance," explains Houcine Berbou, senior consultant at LMS ORH.
All companies can implement a profit-sharing agreement, regardless of size, activity, or legal form. The profit-sharing bonus is exempt from social security contributions and taxes. The employee can choose to receive the sum immediately or invest it for 5 years. For the company, profit-sharing payments are deductible from the corporate income tax base and exempt from payroll taxes.
Under labor law, they aren't considered part of the salary. They don't factor into minimum wage calculations and aren't subject to social security or retirement contributions. For employees, the profit-sharing bonus is also exempt from social security contributions and income tax if paid into a company savings plan (PEE).
Recently, the French government suggested integrating profit sharing into retirement calculations to improve pensions.
A survey of 60 French companies across various sectors shows that implementing such compensation tools based on employees' daily tasks results in performance 20-30% higher than companies without such agreements. The indicators used are often financial (70-80% relate to results, turnover, gross margin). But qualitative criteria, often related to the work environment, are also becoming important (in 40-50% of cases, on productivity levels, quality, attendance). Regarding the social climate, 92% of companies believe it's improved by profit sharing.
Legislation in this area isn't necessary; it's up to companies to make proposals.
Employees respond better when they know their investment (their effort) will pay off. Legislation, as in France, won't help, as the legislature already struggles to enforce labor law. Companies should make proposals. Employees also need to understand the benefits of such systems.
Posted April 15, 2008
La vie éco, April 11, 2008
lavieeco.com
