Profit sharing and why I don’t want it
Sharing in a company's profits should be good, right? It definitely sounds like it, given that every time there are union meetings, employees' conversations with owners and such events this issue always comes to the table.
The workers want a piece of the pie they helped create and that makes a whole lot of sense. The main argument for this is it would boost employee motivation, giving a sense of purpose and responsibility. But there are a few snares we must avoid when we are talking about motivation.
Purpose as the road to success
At this point, I believe it’s safe to say that knowing why you go to work everyday is paramount to motivation and success. I like the cathedral parabole¹ a great deal, and it goes something like this:
Consider the story of two stonemasons. You walk up to the first stonemason and ask, “Do you Like Your Job?” He looks up at you and replies, “I’ve been building this wall for as long as I can remember. The work is monotonous. I work in the scorching hot Sun all day. The stones are heavy and lifting them day after day can be backbreaking. I am not even sure if this project will be completed in my lifetime. But it’s a job and it pays the bill.” You thank him for his time and walk on.
About thirty feet away, you walk up to the second stonemason. You ask the same question, “Do you Like Your Job?” He looks up and replies, “I love my job, I’m building a Cathedral. Sure, I’ve been working on this wall for as long as I can remember, and yes, the work is sometimes monotonous. I work in the scorching hot Sun all day. The stones are heavy and lifting them day after day can be backbreaking. I am not even sure if this project will be completed in my lifetime. But I am building a Cathedral.”
WHAT these two stonemasons are doing is exactly the same; the difference is, one has a sense of purpose. He feels like he belongs. He comes to work to be a part of something bigger than himself.
When we have a clear purpose, that purpose becomes our own, and every effort will be gladly directed in achieving it.
Financial incentives as demotivators
Having a clear sense of purpose and sharing profits are not incompatible. As a matter of fact, I have seen this combination do wonders.
So why in the world wouldn’t I want to be a part in a profit sharing plan? To explain, I must first go through the principles of knowledge working motivation²: you must pay enough so that the issue of money is off the table and that person is free to focus their full potential in problem-solving. Creating financial incentives has the downside of focusing the employee’s attention in doing whatever it takes to reach that mark that is going to provide the money. In the best case scenario, everything that doesn’t help in achieving that goal will never be done — however important and harmful this is in the long run — but the goal will be reached. In the worst case scenario, it’s so distracting the productivity drops, because everybody is so focused on getting the bonus that their creativity and work quality go down the drain, along with everything the employees would otherwise do naturally in accordance with the company’s purpose, but is being left aside to make room for carrot-chasing.
Motivation without profit sharing
There are cases in which employees share profits by holding shares, and I believe there is nothing wrong with that. However, I can’t say I’m sure this affects the employee positively other than giving them a sense of what it feels like to own a part of the company. I guess it works more as a sense of belonging than as a direct motivator.
If the company is looking to use profit as a motivator, to make a plan that works with knowledge workers, the first thing to take off the table is profit. You can instead use profit as a margin to incentivize the pursuit of the company’s purpose, and set metrics that are sufficiently broad that everyone is involved in the same goal, but also that are very easily measurable and binary: whether all employees get the bonus, or none gets it.
A good example is the case of Southwest Airlines¹, which determined that for every month the company ranked in the top five most on-time airlines, every employee would get a US$65 separate, special check. Note this wasn't a plan to share the profits. This was an incentive deeply aligned with the company’s purpose and was much more a motivation for teamwork, enabling unison and providing a marker for success than a bonus plan to increase productivity. True, it cost US$2.5mil in checks, but it saved US$5mil in cost of delay (paying for delay charges, passenger overnight allocation and such).
This is the kind of profit sharing I've seen work, but when a plan for profit sharing appears, it usually is built on incentivizing individual or sectoral performances. This is a small but extremely important change, because it festers competition instead of teamwork, allows for different and conflicting goals per team/employee and brings us back to the case of disregarding why you go to work everyday, replacing motivation through purpose for motivation through financial incentives.
I don't want to earn a special bonus for fetching a stick. I want to earn enough so that money is not a concern, and I can focus on excelling at what I do, contributing to the company's purpose, because in fact the company's purpose is my own.
¹ From Start With Why
² From Drive