The implementation of collective profit-sharing initially depends on the size of the company: SMEs, for example, can involve the workforce in the company’s total annual profit, while large organizations can do so at the level of departments or larger teams. What is important here is the comprehensive communication of successes and a transparent breakdown of the resulting profit-sharing payments. In addition to one-time payouts, profit-sharing can sometimes also take the form of (discounted access to) company shares. The latter increases employee loyalty to the company and involves additional profit opportunities, but also the risk of losses.
Individual profit-sharing results in unequal profit distributions, putting women and members of underrepresented diversity groups at a disadvantage. Individual incentives can also encourage behaviors that harm the organization in the long run. An extreme example is the bankruptcy of Enron in 2001 (see related links). Here, individual incentives systematically led to the pursuit of short-term profits through illegal practices such as accounting fraud. This contributed significantly to the failure of one of the largest energy companies in the United States.
Collective profit-sharing helps to avoid such erroneous incentives and instead encourages behaviors that contribute to the company’s long-term success. Combined with sustainable corporate goals, this provides a positive form of internal competition that promotes cooperation and knowledge sharing, which drives innovation.