Business Essentials for Professionals


How employee profit-sharing schemes can build employee loyalty and boost efficiency

Company executives and human resources managers are constantly on the lookout for new methods for creating a positive workplace environment and boosting employee engagement.

American firms have an employee engagement problem. Around 3.5% of the workforce is absent at any one time and, according to the Harvard Business Review, presenteeism – the notion that an employee may come into work but, for a variety of reasons, they are unproductive – is even more costly to the U.S. economy. Gallup research shows that 64% of Americans are not engaged in their work while 15% are actively disengaged, which means, at best, that they are likely to have a deleterious effect on the workplace atmosphere by undermining their co-workers’ accomplishments and, at worst, that they are deliberately sabotaging the company.

There are wealth of practices available to companies – from teambuilding sessions and corporate retreats to employee services – and one method currently in vogue is the promotion of employee share ownership or the redistribution of a percentage of the company’s profits directly to employees. But beyond the intuitive, visceral way that profit-sharing schemes are immediately appealing for employees, are they more effective than classic compensation packages including performance-related bonuses?

The evidence seems to point to yes; profit-sharing schemes actively create engagement by fostering the idea that the employees and leadership are “in it together”, in a way that is concrete for employees and which, in the long term, generates better returns for businesses and investors.

Multiple studies show that profit-sharing schemes help to increase firms' revenue and gross profits; profit-sharing schemes create greater alignment between employees and management and ensure that employees literally have a stake in the company’s results, even if they are not actually a shareholder. The feeling that they are, in a sense, “spending their own money” encourages employees to think like owners – like they have skin in the game. Similarly, a kind of mutually reinforcing peer pressure can exist; employees will encourage each other to take a prudent approach to expenditure if this spending has a direct impact on their earning power.

Ownership Works is a non-profit organisation that was founded on this exact premise. It attempts to reconcile the company’s interests with those of its workers, partnering with companies and investors to provide employees with the opportunity to develop their personal wealth. Thanks to this novel approach, it has already rallied some 60 corporations, private equity firms, banks, and foundations who employ more than 45,000 people in total. The organisation’s founder, Pete Stavros, describes the concept of employee ownership as creating “employee voice.” Employees no longer have a passive role in the business: they are expected to speak up, and having a voice means being listened to. As a result, they feel trusted and respected, and they are therefore more likely to feel committed to the company’s long-term future. Employees are also happier to go into to work because they believe they have a stake in the company’s results. Ingersoll Rand, a American manufacturer of maintenance systems, launched an ownership plan for its 16,000 employees in 2020 and research conducted by the company’s shows that engagement increased from the 20th percentile to the 90th percentile.

A culture of ownership is not just about intangible factors though, there can be direct, quantifiable benefits for the company. CHI is a manufacturer of overhead doors with 800 employees; in the seven years after CHI joined the Ownership Works initiative, the firm doubled its annual revenue but scrap stayed at almost the same level because employees felt personally invested in maximising the company’s profit margins. In another case study, Ingersoll Rand multiplied the value of its company by 10 in just six years.
Elevating employee engagement also addresses the now-critical issue of employee retention. Ingersoll Rand also saw its turnover rates drop from 20% to under 3% while Insight Global, which facilitates share ownership through $5,000 grants, has seen its employee turnover rate fall by more than 60% since 2017.

Another Ownership Works partner, private equity firm Ardian, which joined the initiative in 2022, is majority-owned by its employees. The firm believes that its low employee turn-over and positive work environment is in part the consequence of a long-established, tried-and-tested profit-sharing strategy. Ardian created its first profit‑sharing scheme as early as 2008, and it is corporate policy to distribute part of the company’s capital gains on exit. “Our profit-sharing policy perfectly reflects our ambition to compensate all stakeholders,” says Ardian’s CSR and Sustainability Investment Manager, Candice Brenet. “68% of the companies in our buyout, expansion and infrastructure portfolios have put in place employee profit-sharing schemes during our ownership, and since 2008, we have we distributed more than €35 million in capital gains to more than 14,000 employees working for 24 of our portfolio companies.” Ardian’s CEO Dominique Senequier was quick to understand how employee engagement represents a competitive advantage; she led an employee buyout of the firm in 2013 and leveraged its employees’ long-term commitment to the company to build Ardian into one of Europe’s biggest private equity investors.

The Covid pandemic was the catalyst for a massive shift in attitudes to work in Western countries; with millions of people forced to stay at home, many reflected on their relationship to work and concluded that they aspired to greater meaning, leading to the so-called “Great Resignation”, which saw resignation rates double between 2020 and 2022. Companies that implement profit-sharing schemes are more resistant to such phenomena; employees are less likely to feel that the grass is greener on the other side if they believe their efforts are recognised, that they are being compensated appropriately, and if they have the kind of attachment to their company that employee ownership can provide.

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