Who shares in a company's success?

Profit sharing is designed to reward hard work and drive behavior for the good of the business. Hewlett Packard had a profit sharing plan in the 80s and 90s that fed all job titles and pay ranges.  I participated an HP plan that made all profit sharing plans after that point complicated, opaque and tilted towards the higher paid employees. 

The HP 10% Profit Sharing Plan

HP distributed 10% of the company's profit to the employees on a semi-annual basis. This meant everyone was reminded of the company's health every 6 months.  Seniority and time served played no part in the formula.  This was unlike many of today's two tiered retirement or incentive programs where younger hires have weaker deal.

The Profit Sharing bonus was pro-rated based on the employees salary capped at $100,000 basis.  The pro rating and salary cap meant the paid out dollar amounts for factory line employees and executives profit sharing amounts were closely aligned.

Payout

The HP plan paid employees in stock on a semi-annual basis. It ran from 10%-15% my my time with Hewlett Packard. This was essentially one extra months pay per year.  A lot of people found this highly motivating.

Profit Sharing drove behavior

Spending controls were often driven by team members.  Many HP meetings contained a discussion around.
How does this affect our profit sharing?
It seemed that only the executives in the new Executive Office building were immune to this discussion judging by trim level of their facilities.  The founders offices stayed in Factory 1 during this time.  They had a significantly lower level of opulence.

Incentive Plans

Incentive plans are targeted at specific classes of employees. They are a totally different type of bonus than the Profit sharing discussed above.

It turns out building good incentive plans is very difficult or maybe even impossible. There have been plenty of articles that describe incentive plan failure: Harvard Business Review , Forbes ,  Forbes and outright fraud: Wachovia Wikipedia. I've personally worked in software sales groups where representatives spent more time in discussion revenue splits and the right commission driven product mix than they spent on the customers needs.   Incentives can increase drive and motivation. They can be beneficial, SalesForce, with the right targeting and oversight.

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Created 2018 07 22

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