Advice on tailoring profit-sharing plans to motivate employees.
Many CEOs fear that formalizing a profit-sharing arrangement with employees would rob their businesses of capital and, ultimately, stunt growth. But to Richard Dapson, president of Ana tech, a supplier of chemicals to hospitals, profit sharing is the fuel behind his Battle Creek, Mich., company's 25% yearly growth rate.
At Anatech, profit sharing takes two forms: cash bonuses, which range from .75% to 2.0% of pretax profits, whenever there is a profit; and retirement-savings contributions equal to 10% of each person's wages plus bonus, paid by the company into a simplified employee pension (SEP) plan. Below, some tips from Dapson on how to tailor profit-sharing plans to motivate employees:
* Make frequent contributions. Anatech pays its bonuses and SEP contributions monthly. "Because the rewards are tied to current performance, people keep track of sales each day, so they can see if they'll get those bonuses," Dapson says.
* Keep plans simple. One priority of Dapson's was to make the connection between corporate results and individual rewards simple enough for everyone to understand. "I wanted people to be able to calculate while they're doing their jobs that if sales go up by x, their next bonuses will add up to y," he says.
* Don't attach strings. Because he felt confident about having designed an attractive compensation scheme, Dapson didn't set up a prolonged vesting schedule to tie employees to the company.
* Be fair. At Anatech, even part-time workers participate in the profit-sharing plans once they've worked for the company for several months. Fair sharing is so ingrained that when Dapson and his two partners reward themselves with extra bonuses, they write extra profit-sharing checks for their employees as well. -- Jill Andresky Fraser