It’s no secret that the 21st century wage earner differs significantly from his or her 20th century counterpart in terms of the expectations they have of employment. No longer do employees believe they will work for one company until retirement. In fact it’s not out of the ordinary to expect many workers to transition through various occupations during their careers. However, there is a constant expectation that most employees share.
Notorious BIG said it best, “It’s all about the Benjamins.” One thing that remains a top priority with workers is the almighty dollar. According to Deloitte’s 2016 Millennial Survey and the Paychex 2016 Employee Retention Survey workers see their wage as the most important aspect of compensation. Companies, especially small businesses, need to be creative when trying to develop incentives that will attract high quality personnel and encourage retention. This challenge can prove formidable considering the demands on businesses to moderate expenses in order to maximize profits. In addition the Market Theory of Wage Determination, the concept that the price of labor is determined by supply and demand, is especially evident in today’s resurgent economy that has seen historically low unemployment rates across several demographics. Companies are under increasing pressure to find and keep employees.
Enter profit sharing, a compensation arrangement that, to some extent, is practiced by the likes of Verizon, Southwest Airlines and Keller Williams Realty. Profit sharing is especially advantageous to small businesses as it provides employees an opportunity, if structured correctly, to grow their compensation in direct proportion to their productivity and efforts to expend the company’s revenues. The retention benefits of profit sharing programs become evident when one realizes how they serve as an adhesive that causes the employee to look beyond loyalty to the firm and toward a feeling of ownership and accountability catalyzed by that most powerful of motivators, self-interest.
It is important to note that profit share and revenue share could not be more different. In fact one, the latter, can serve as an anchor to profits while the former can not be realized until a profit is generated. Revenue share is an expense. As you enroll more employees into a revenue share program you must either accept an ever increasing expense line or reduce the percentage of revenue share to some or all participants. Reducing employee pay is usually a prospect that is deleterious to morale thus potentially contrary to retention efforts.
Profit share is reliant on productivity and therefore is a symbiotic and mutually beneficial prospect. Keller Williams Realty International has utilized profit share to great effect in becoming the number one real estate brokerage in the US, by agent count and sales. The company’s program is voluntary and incentivizes participants by sharing a portion of the company’s profits generated by sales agents who are brought into the corporation by agents who choose to recruit productive sales people. In order to share profit there must be profit. The caveats are the recruits must be productive agents in productive market centers. This emphasis on productivity spurs constant growth. The interdependency of the program creates a culture of cooperation, development and creativity.
In the interest of full disclosure, I am intimately familiar with the Keller Williams model of profit sharing because my family’s real estate agency is housed within a Keller Williams brokerage. I believe that profit sharing is a form of compensation that is fit for the future. It allows employees to participate directly in the growth of the company and to share in the upward trajectory of the organization. The success of Keller Williams in supplanting legacy real estate brokerages like REMAX and Coldwell Banker can be traced directly to its profit sharing model which heavily motivated agents to help grow the business. This is a true example of sharing the wealth and growing the pie for all involved in the success of the organization.