I like profit-sharing plans, and I am in good company. Our Founding Fathers saw America as a country that would prosper because every worker is a capitalist.
While doing some research on the minimum wage and profit-sharing I came across “The Citizen’s Share: Putting Ownership Back into Democracy,” a Yale University Press book by Joseph R. Blasi, Richard B. Freeman and Douglas L. Kruse. I was surprised to discover that in 1792 Congress enacted a law that required the profits in the cod fishing industry to be split and the majority of the profit, 62.5 percent, was to go to the fishermen. The ship owners didn’t suffer, they kept the single largest share of the profit — but not the majority share.
Thomas Jefferson had compiled research that demonstrated fishing operations were more efficient and profitable when the fishermen shared in the profits. What would America look like today if a sizable percent of profit had to be distributed to employees and the business owners — or shareholders — kept the rest?
The Founding Fathers were concerned that a “business aristocracy” would allow a few to dominate the many, “The Citizen’s Share” authors wrote. James Madison believed the government should prevent “an immoderate and especially unmerited accumulation of riches.”
What Madison feared has become a reality. The Walton family, descendants of Wal-Mart’s founder, have accumulated massive wealth while many of their employees are living at or below poverty level.
Around the turn of the last century Standard Oil, Kodak, Procter & Gamble and Pillsbury were starting out and they used profit-sharing plans to attract and keep workers and discourage unions.
Lincoln Electric, a case study often taught in today’s business schools, continues to use the same profit-sharing plan today that was put in place when the company had just a dozen employees back in 1930s. Lincoln Electric pays its production workers a living wage ($12.50 to $15 an hour) and every year for the past 78 years it has paid a profit-sharing bonus at the end of the year that may double or triple an employee’s income.
The cost of wages moves up and down with the company’s profits. Lincoln Electric has contained its cost of wages and the employees are paid well above the “going rate” for their jobs. Jefferson was right — businesses are more profitable when employees share in those profits.
Why? Because when the profit-sharing bonus is small, employees will ask what they need to do to crank up the amount — and they will expect good, detailed answers. And they expect management to listen to their suggestions.
Lincoln Electric has tough performance standards. It mandates overtime when things get busy, and management expects employees to cross-train, be flexible and accept different job assignments as-needed. But in return, the employees are paid well and have job security.
A few times over my career when I was working with businesses that needed to bring their pay policies into compliance with wage-and-hour law, I have been told by employees that while they would appreciate a bigger paycheck they would rather see some big changes made to their jobs and how work was managed. When minimum-wage workers reject a pay increase and tell you it would be a waste of the company’s money, it’s time to listen to what they have to say.
These employees needed and wanted a bigger paycheck — but they also really wanted to be heard. They were frustrated and bored. They could see all the problems with quality and production, they knew it had an effect on the company’s ability to pay them — but no one was listening. They didn’t want their employers to hand out Band-Aids when the employees could see that some surgery was needed for the good of the business and the security of their jobs.
The challenge I had when I found myself working with minimum-wage employees who wanted the company to do the right thing for the business, and for them, was convincing management that the employees could solve some problems if they were given the chance. Each side, management and employees, had a distinct view of what was happening in the business. Working together seems like an obvious way to get the best results.
Our farsighted Founding Fathers had it right. But do I want to see government mandate how profits are split between employees and owners, as Washington and Jefferson recommended? No, I do not.
Every business is different and complex and some problems can’t be solved with more employee involvement. But I have witnessed too many business turnarounds happen after the employees became involved and collaborated with management — and shared in the profits — to doubt the value of profit-sharing plans.
Virginia Detweiler, based in Walla Walla, provides human resource services and management training to businesses in southeastern Washington with her firm HR Partner on Call. Her columns rely on reader questions and comments for topical material. Because of job and employer sensitivities, care is taken to protect identities. Contact her by email at email@example.com or phone at 509-529-1910.