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Stemming the ‘Great Resignation’ by Returning to Profit-Sharing

If there’s one expression in today’s American labor scene that has to infuriate thousands of large and small business owners, it has to be “the Great Resignation.” Including the 15 percent absentees suffering Long COVID symptoms  such as “brain fog,” it means 4.5 million employees  have quit to seek better-paid and safer jobs since last spring. Some 7.9 million positions have been available since 2021, according to the Bureau of Labor, and thousands of takers.

Worse, thousands of employers seem to be unable to attract replacements  willing to work under conditions said to have to driven off the “quitters.” Too many are also Scrooges believing all net profit belongs to them and the stockholders. That they would rather shut down or sell the business than remedy employee complaints—or share a nickel of profit to the “hired help” lucky enough to be employed, they firmly believe.

Many have been blaming labor shortages on former employees’ laziness, greed, or lay-abouts living off parents or taxpayer dollars from the 2021 American Rescue Plan . Few admit blamer for departures: COVID deaths and injuries from unsanitary and dangerous workplaces. Or low wages  ($7.25 per hour) in 19 states and only two paying $15 minimums. Add meager benefits and none for temps. Sudden layoffs or downsizings. Killer hours (10-16 ) and six to seven workdays . Or verbal and/or physical abuse from bosses instead of according them the same respect as expensive company equipment. Which they are.

Fortunately, many other employers equally desperate for workers—especially with today’s major and minor strikes and rampant absenteeism —are now forced to recognize that obvious and expensive changes must be made to recruit and retain many if their companies are to survive and thrive. Most know many changes are tax-deductible business expenses, but they lack the initial capital to take those steps. Or they may not have the credit to borrow the large sums required, say, to install a new ventilation system preventing COVID’s spread throughout the company.

If high costs, not greed, is the chief factor in failing to address most of these complaints, many employers could at least provide the low-risk and timeless incentive of a profit-sharing program—especially payouts in cash, not stocks/bonds or matching retirement programs risking shutdowns or acquisitions and mergers. By contrast, profit-sharing in cash—either quarterly or annually—guarantees employees an instant payout to use.

Basically, the plan peels off a portion of a company’s pretax profits into a pool split among eligible full-time, permanent employees either quarterly or annually. A major advantage for employers is that profit-sharing can be written off as a 100 percent tax-deductible business expense . They can even save money within the plan by using exclusionary clauses such as barring employees under 21, vesting by various annual requirements, awarding sums by seniority, or percentages based on salaries.

Profit-sharing essentially makes employees invaluable, long-time junior partners because if the firm does well, everyone benefits. If it’s a bad year, everyone shares the same downturn and has triggered thousands of employee ideas to reverse the situation.

Yet only about a third of U.S. companies have retained profit-sharing programs since the 1990s although some of the highest earnings in downturns have been achieved by those businesses. True, the program has been significantly watered down from their 1865 origins. A British mining company of that era shared 10 percent of the profits and reaped significant hikes in employee productivity, loyalty, and retention; it was at 15 percent apparently by the time the site was cleaned out. Far more modest formulas have been subsequently hammered out by unions and employers.

To understand how highly successful profit-sharing programs operate, a stellar current example is the automobile industry.

The three major U.S. companies had record-breaking net profits in 2021: Stellantis (Chrysler, Jeep, Opal, Fiat, Peugeot, etc.), Ford, and General Motors earned $17.9 billion , $10 billion, and $15.2 billion, respectively. That means they can distribute eye-popping profit-sharing checks to their full-time, permanent American employees.

The UAW (United Auto Workers) formula for both GM and Ford is $1,000 to $1 billion of pre-tax/interest on net profits. Stellantis’ new formula replaces a $12,000 ceiling increasing company contributions to the pool by “$100 per percentage point” of net profits. So payouts for Stellantis’ 43,000 stateside employees average $14,670 ; GM’s 42.500  will receive about $10,250  and Ford’s 56,000  , $7,377 .

No wonder profit-sharing plans—particularly in cash—have been so popular with employees and employers for well over 100 years. British woolen-mill owner Theodore C. Taylor was one of its greatest visionaries and enthusiasts. He practiced the program for 20 years and watched his company grow from 600 to 1400 employees. So well-liked was he as an employer and community leader that voters kept him in Parliament from 1900-18 . Taylor shared his experience in a timeless, seminal 1912 article (Profit-Sharing and Labour Co-Partnership ) about treating employees as vital “co-partners” in a company with well-deserved portions of the net profits. In the language of those times, he listed the timeless benefits of profit-sharing for both employees and employers:

+ “…the system greatly diminishes friction between Capital and Labour. [It] substitutes good-will for mistrust, it keeps going the production of wealth, thus saving to everybody the immense loss inflicted by strikes and lock-outs.”

+ “It promotes permanency of employment. Not only is the workman less ready to leave, but the employer is less ready to discharge workmen in bad times.”

+ “…the co-partner workman is happier, more contented, and, therefore, more efficient and profitable to the business…There is no business in which the employees will or can work as well without the stimulus of self-interest as with it….The sense of ownership is a strong incentive to the workman to take a greater pride in the reputation of the company for good workmanship.”

+ “…The system dignifies and raises the character of business life.”

+ “Profit-sharing concerns do not pay lower wages than other businesses. The workman is acknowledged as something more than a profit-earning machine. He is raised from the status of wage receiver only, to that of sharer in the profits and capital of the business.”

+ “…the working classes are earning money they would not otherwise earn, which enables them to buy goods they otherwise could not buy, retaining them as customers for manufacturers.

+ “[ The employee] is given an additional means of making provision for contingencies and old age.”

+ “The monotony of toil [for the employee] is relieved by his having something to look forward to at the year-end.”

Taylor’s point about the stimulus of self-interest involves employee creativity in increasing company and patent profits whether a product or operational process. A classic example of that creativity of a small product that has reaped billions was the 1968 invention of 3M’s most famous product: Post-it® Notes. A pair of its researchers (Art Fry and Spencer Silver) created that still useful office product on their own time for the company—and, ultimately, their fellow profit-sharing employees.

For companies suffering from labor shortages, a profit-sharing program has always been a successful recruitment tool. Taylor’s item about raising “the character of business life”—image—means shedding the “Greed Is Good” reputation by sharing wealth earned largely by those dedicated “co-partners.” Image is also tied to the good-will financial factor involving customer relations, certainly boosted in case of mergers or acquisitions.

Another key benefit of profit-sharing today, particularly vast corporations, is avoiding subpoenas in Congressional hearings concerning employer greed, gouging customers, or employee mistreatment. They’ll never be blistered by, say, Sens. Elizabeth Warren and Bernie Sanders or Rep. Alexandria Ocasio-Cortes for treating employees as low-paid, expendable mules forced to work under the filthy and dangerous conditions until either serious injuries or deaths result.

With all the “great resigners” flocking to those millions of new job openings  , it’s possible many smart employers will stop complaining about labor shortages and finally do something about it. If they’re unable to immediately offer living wages, generous benefits packages, and safe working conditions, they can at least start a profit-sharing program—paid in cash.

When even the Scrooges learn (or remember) profit-sharing is a business-expense tax write-off, they may not suddenly become transformed into Theodore Taylors. But in seeing that the program offers so much to gain and so little to lose for both employer and employee, many might at least try it. It may solve labor shortages and, next, change their contempt for those who have kept them in business.