Monday, November 14, 2011

Profit Sharing and Unemployment

More employers should link worker pay to the success of their company.  A profit-sharing arrangement or a system of bonuses pegged to fluctuations in revenue would increase worker engagement and, consequently, productivity.  But equally important, if adopted on a large enough scale, it would reduce unemployment during bad times.  
When a recession hits, demand for goods typically drops and, as a result, prices fall.  But wages are stickier and don’t usually move in a downward direction.  Instead, when low prices cause a company's earnings to go down, employers cut their workforces leading to long lines at the unemployment office. 
But what if employee pay was largely based on revenues?
During a downturn, a company’s cost of employment would decrease with the drop in revenue eliminating much of the need for layoffs.  For the workers, pay cuts aren’t pleasant, but knowing your job is safe is a tradeoff I think many would take. 
Additionally, this gives employees a stake in the company's recovery and provides an incentive for everyone to help right the ship.

No comments:

Post a Comment