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Profit Sharing plans to non-exempt employees
Benefits & Compensation
Profit Sharing plans to non-exempt employees
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Hello, I am looking for advice or suggestions on what I might do concerning a proposed profit sharing plan that would include ALL non-exempt employees. The percentage of profits to be shared are equal
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Forums » Topic Forums » Benefits & Compensation » Profit Sharing plans to non-exempt employees
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Profit Sharing plans to non-exempt employees
posted at 2/12/2011 5:25 AM EST
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Posts: 2
First: 2/12/2011 Last: 2/13/2011 |
Hello, I am looking for advice or suggestions on what I might do concerning a proposed profit sharing plan that would include ALL non-exempt employees. The percentage of profits to be shared are equal to 10% of the gross margin percentage our company achieved last year. In other words, all net profits are to be divided among all non-union employees and senior management. Is this a wise business and ethical move? AS I am not confident our company can afford these plans. |
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Profit Sharing plans to non-exempt employees
posted at 2/12/2011 10:46 AM EST
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Posts: 562
First: 11/12/2009 Last: 9/14/2011 |
Interesting thought. I think a big part of whether or not to do it depends on what your intent is.
I did one about 15 years ago that was very successful. We did it as a way to stay competitive with compensation yet provide something of a buffer in case of a downturn. At 80% of our net profit goal each quarter, we starting accumulating 1% bonus for non-exempts for every 2% increase beyond 80% of our net profit goals. We did not have a cap on it, but clearly the goal was to give 10% to all employees. What we found was that you have to keep the goal simple (like what you stated). We found that it was a great employee engagement tool - every 2 weeks the president had an all hands meeting and we updated the bonus status (we used a United Way style thermometer chart and left it up in the cafeteria). At the meeting, the president often pointed out some problem areas (scrap was one, for example). Once he did that, the turn around in that one problem area was remarkable - scrap had been around 23%; it was reduced within days to less than 4%. I think its a great idea. Just make sure you have a clear line of sight between employees and how the bonus is calculated. And, of course, pay out as a percentage of earnings per employee in th quarter to avoid that whole overtime recalculation thing. |
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Profit Sharing plans to non-exempt employees
posted at 2/13/2011 3:54 AM EST
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Posts: 2442
First: 2/12/2000 Last: 9/14/2011 |
I would not use a percentage of gross profits. You could have a company that reports negative net income and still paid 10% of gross to staff into 401k. Shareholders might be quite annoyed with this outcome. Do you really want your CEO to have to defend it at the annual meeting? |
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Profit Sharing plans to non-exempt employees
posted at 2/14/2011 7:40 AM EST
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Posts: 2146
First: 2/15/2006 Last: 9/14/2011 |
I would strongly suggest you deal with an HR consultant that is VERY familiar with all the ins and outs of Profit Sharing and whether or not you want to have it as an add-on to any of your retirement (401k) plans. Some companies pay PS but it goes directly into the retirement plan with vesting and forfeitures so that the company is also rewarding service/loyalty rather than just current results.
There are lots of different factors to consider and I would not consider this a DIY project because of those. Just one would be how you deal with those that terminate after the end of the profit sharing period but before the calculations are completed (which could be months later). It's not a lot of fun to track those people down to pay them or to deposit into a retirement account that has already been distributed -- then a 2nd distribution is required (at an additional fee from the recordkeeper probably)...etc. |
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