Are profit-sharing incentives getting attractive again?

Profit-sharing was introduced by General De Gaulle in 1959 with the aim of amalgamating the interests of employees and employers, by linking staff interests to the success of the company. Today, sixty years on, this old value-added sharing scheme is still full of promise. The proposed company law known as Pacte devotes one of its key measures to incentives i.e. by abolishing the flat-rate NI contribution (“forfait social”) for companies with under 250 staff. Will this be enough to give a new lease of life to such schemes, so familiar but often not understood?

Profit-sharing hiding in the wings

The growth of such schemes came to a halt several years ago. The “forfait social” set at 2% when introduced in 2008 and which rose rapidly to 8% and then in 2012 to 20%, has made these bonus schemes much less attractive. In 2015, profit-sharing distributed by companies with over 10 staff hardly exceeded 8 billion Euros. Although one in two employees in companies with over 250 staff have access to profit-sharing, such schemes are practically absent in companies with under 50 staff. Less than 10% of those staff actually have a scheme.

A flexible way to help staff share in company performance

Profit-sharing has everything to make it attractive, especially in small companies. Even though it is optional, it is still an agreement made with staff or their representatives.  Calculation of the incentive can be based on the company’s trading results. In this way, it offers staff a form of variable, collective remuneration that is proportional to the company’s good results. Nevertheless, the incentive may also be linked to more targeted performance criteria, not actually appearing in the books of account. For example, in the building trade, some incentive agreements are based on meeting completion deadlines or the upkeep of plant and material. In services or consulting, customer satisfaction may be an important criteria. In this way, an incentive mobilises staff around precise collective objectives on which they clearly have influence. On one condition: the criteria must be capable of objective measurement. By mixing various criteria, an incentive agreement arrives at a customised formula that determines staff bonuses, at least for the next three years.

Cost now makes it attractive for companies with under 250 staff

Abolishing the “forfait social” for companies with under 250 staff means the difference in cost of a profit-sharing “bonus” as opposed to salary extras becomes spectacular. A €100 bonus taken in the form of salary would cost the employer at least €180. If paid as profit-sharing, the same net amount of €100 would only cost the employer €111 (€111 less CSG and CRDS levies costing 9.7%). These financial gifts still do not ensure a massive take-off for these incentives in companies with under 250 staff.

It is the real nature of such schemes that puts the brake on

Firstly, putting together a profit-sharing agreement presupposes a period of negotiation with staff. Staff can get various people involved: union reps, the ESC (economic and social committee), or the staff themselves who will have to ratify the offer made by the employer. Negotiations are always a good time to take the pulse, as it were, of the company’s staff. 
Once discussions have succeeded and the legal deadlines passed, the agreement may be registered. It is up to the employer to ensure the agreement lasts over time: the criteria used should be measured and be the subject of active and clear communication to staff. In reality, entering into a profit-sharing agreement entails a certain degree of transparency on the company’s performance, something that can be off-putting for many an SME boss when having to publish and explain results and, in effect, become accountable to their staff. Seen from that angle, one can understand why some prefer to stick to traditional bonuses paid to deserving employees individually on a discretionary basis.Even though profit-sharing incentives satisfy the idea that staff contribute collectively to performance and the notion of negotiated profit-sharing, not all trade unions and leaders of opinion are convinced. Some people are suspicious to a maximum. Even though they are attached to the pre-eminence of the employment contract, they are reluctant when it comes to sharing in the risks as well as the profits of the employer and are allergic to employee savings schemes.
Such hesitation found with so many people, shows that a profit-sharing incentive is much more than just a tax-free bonus. It is a device that boosts the feeling of common interest between boss and staff, and breaks down the traditional barriers within the organisation. In short, the first stage towards a change in management culture.