equity plan release,Workers’ share of profits: one fifth?

One of the nine top business practices identified in the Top Small Workplaces Awards published last month by the Wall Street Journal is “Employees share in the risks and rewards”. This is easy to say, more difficult to practice, and very difficult to figure out how much of the profits should be shared and with whom. In this entry we explore this issue.

EBBF’s Farshad (Fasha) Mahjoor, president of one of this year’s award-winning companies, highlighted Phenomenex’s profit sharing plan as one of the key elements in its success–though he feels the amount still falls short. Here are his words:

Another benefit we provide is a “profit sharing plan” for our employees. … I don’t know of any other company that does this. That is, every year, a percentage of our profits is shared equally among our employees that have been with the company for more than two years-based on seniority, NOT status or income ([whereby] the “rich get richer”!). Even though we do that, I still have not plucked enough courage to do as much as … recommended [in the Bahá'í Writings], but I hope one day I can get there.

This “profit sharing plan” is also mentioned in the original WSJ document. Now, I bring this to your attention, since this is where most business people have difficulty with parting with money. A business should NOT be all about money-it should be much more than that. Of course, money is important, but I personally think our responsibility as business owners should be far more than building personal wealth.

Here is one instance in the Bahá’í writings where profit-sharing is mentioned–and where a specific percentage for sharing is suggested:

It is, therefore, preferable for moderation to be established by means of laws and regulations to hinder the constitution of the excessive fortunes of certain individuals, and to protect the essential needs of the masses. For instance, the manufacturers and the industrialists heap up a treasure each day, and the poor artisans do not gain their daily sustenance: that is the height of iniquity, and no just man can accept it. Therefore, laws and regulations should be established which would permit the workmen to receive from the factory owner their wages and a share in the fourth or the fifth part of the profits, according to the capacity of the factory; or in some other way the body of workmen and the manufacturers should share equitably the profits and advantages. Indeed, the capital and management come from the owner of the factory, and the work and labor, from the body of the workmen.

Since this was written at the height of an industrial economy (first decade of the 20^th century), it begs the question whether the point is as valid today in a much changed economic landscape. Do we currently need “laws and regulations to hinder the constitution of the excessive fortunes of certain individuals, and to protect the essential needs of the masses”?

What about the amount? Is 20-25% a universal figure for profits to be shared with employees, in factories and other businesses, independent of their size? Do you know anyplace where this is done? In your workplace?

For an earlier conversation on a values-based reward schemes, click here.