How To Attract And Retain Workers In The Future, Part 5: Profit Sharing
By Ted Garrison, Garrison Associates
The idea of sharing profits with workers may seem threatening to some, but it’s a win-win approach to attracting and retaining high performers. To compete for today’s high performers, the industry needs to expand profit sharing to all workers.
The benefits of profit sharing for the workers should be obvious, but it’s important for contractors to understand that profit sharing can actually increase productivity. With the labor shortage, increased productivity is critical. First, the labor shortage will place upward pressure on wages; therefore, the only way to keep costs down is to increase productivity. Second, increased productivity will reduce the demand for workers. Unfortunately, raising wages doesn’t necessarily increase productivity, but profit sharing does. The time for profit sharing has arrived.
Merit shop contractors can implement profit sharing without too much trouble. However, union contractors may face restrictions or protests from the unions because unions often argue all workers should be paid at the same rate. However, it’s time for unions to accept that workers need to be compensated based on job performance and profitability. When unions argue against variable wages, the author reminds them that all professional baseball players aren’t paid the same amount. So if high-performing baseball players are paid more, why shouldn’t a highly productive craftsperson be paid more?
What’s even worse is that when everyone is paid the same, there is no incentive for the best workers to deliver their best results. Less talented peers often pressure high performers because they feel threatened, and the higher performer feels no obligation to deliver more than his peers since they are paid the same. This negatively impacts project performance.
However, when profit sharing occurs, the attitudes change. Incentive pay is about rewarding individuals who produce consistently at higher levels. In contrast, profit sharing is about sharing the increased project or company profits that result from the team’s increased productivity. In this mode everyone encourages all workers to produce at their peak performance, regardless of their level, because each individual performance contributes to the team’s overall productivity.
What makes this process different is that it’s not about cracking the whip to make people work harder; it’s about creating a different attitude. Under profit sharing, workers increase collaboration and look for ways to eliminate waste. Non-profit-sharing workers feel they are simply paid to perform the assigned task. It’s important that any profit-sharing program focus on both productivity and quality. Workers quickly learn that if they have to do go back and redo something, it will impact company profits and their paycheck.
Another benefit of profit sharing is it allows wages to adjust very quickly to market conditions. If wages are established when the industry is struggling, then when the industry takes off, the worker feels exploited, which can have a negative impact on productivity. In contrast, if the wages are established during a construction boom, the contractor may be in serious trouble when business slows down. However, if a fair wage is established based on a slow economy and low company profits and wages are allowed to increase proportionally as profits increase during boom periods, the workers are assured fair compensation regardless of the industry’s economic conditions.
What’s important for contractors to understand is profit sharing is not a bribe; it’s recognition for job well done. What makes this magical is that the number one motivator of workers is appreciation for the job they do. Therefore, if the industry wants to attract the best workers, it needs to recognize their high performance.
In closing, any profit-sharing plan should be a variable system that allows workers to earn at least 25 percent of their compensation through the plan. The payments should be monthly or quarterly depending on the project, and the payment should be in a separate check. Finally, the plan should be simple and easy to understand with no tricks.
Profit sharing may seem scary, but in reality it’s a smart move and actually has lower risk than increasing wages.
For Part 1 of this series, click here. For Part 2 of this series, click here. For Part 3 of this series, click here. For Part 4 of this series, click here.
Ted Garrison, president of Garrison Associates, is a consultant, author and speaker to the construction industry. Ted is the host of the Internet radio program, New Construction Strategies. He can be reached at Ted@TedGarrison.com.
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