Four years ago, Bill Frazier, owner of Austin Gutterman, introduced a profit-sharing program at his Texas gutter and gutter protection company. Here's how it works:
The company awards quarterly bonuses to all employees who have worked there for at least a year. But the bonuses are only distributed if Austin Gutterman generates a minimum of 5.1% net profit. If it does, 35% of that profit is divided among non-managerial employees, with 40% retained and the remainder divided among five managers. In the first year of profit sharing, Frazier gave away $100,000 in bonuses and retained 4.8% net profit. What did he get for that? Lower turnover, higher gross and net profit per employee, higher closing rates on sales (as communication between sales and production crews improved), and reduced overhead as employees became accustomed to looking for ways to save on costs. Today Frazier's business has almost doubled in size.
Providing an Incentive Profit-sharing plans are an incentive-based compensation program that award employees a percentage of the company's profits. In Frazier's case, he introduced the program as part of an “open book” effort to educate employees about how the business runs and, in particular, about its expenses.
Employees meet quarterly to celebrate the company's success and to submit ideas for reducing expenses, hence adding to bottom-line profits and profit sharing. For instance, a 2004 suggestion to increase the price of drip edge flashing by 15 cents per foot added $13,521 to Austin Gutterman's installed sales that year.