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As a business owner, you're always looking to motivate employees and boost company loyalty. That's why you should consider implementing a profit sharing plan.
We've analyzed the profit sharing plans of highly successful corporations, like Home Depot and Walgreens, to provide you with real-world examples to model your own plan after.
Whether you lead a small start-up or a large enterprise, you'll discover how seven companies successfully structured equitable compensation through transparent revenue sharing.
Read on for insights and inspiration to create a customized profit sharing program that's right for your organization.
Perhaps you're only considering implementing a profit sharing plan, or you have already taken concrete steps to reward your employees and share revenue. Either way, it can be beneficial to look at successful corporations and see how they did it.
Below we'll discuss seven companies with profit sharing plans that have been successful in rewarding their employees, boosting motivation at work, and contributing to retirement savings.
The Home Depot profit sharing plan has been in place for over two decades.
This home improvement and DIY giant shares a percentage of its annual profits with eligible employees (non-management staff members) and associates each year as a cash bonus - they call it "Success Sharing".
Full-time staff who have worked at Home Depot for more than a year receive a twice-yearly bonus based on how many hours they worked.
In the fiscal year of 2022, Home Depot paid out around $409 million to non-management associates in 100% of their stores.
These payments illustrate the long-term commitment of Home Depot to compensating their employees fairly.
When Buffer started out, they were not profitable and even suffered a loss in 2016. But as of 2017, the company started with profit sharing payments to reward employees. That first year, the company paid a total of $300,000 in profit sharing contributions to employees as well as contributions to charities.
Buffer uses a publically disclosed profit sharing formula to determine their employee and charity contributions each year. Depending on their profits, they distribute between 8% and 15% of profits to employees as a Team Bonus, and 20% of the Team Bonus to charities.
But, they go beyond these basic figures. Within the team, the following components are used to determine how much each team member receives:
ConvertKit firmly believes that everyone in its team must receive some of the company's profits. After making profits in 2016, the company started rewarding employees with their hard work.
The Core Team Members at ConvertKit receive a bonus twice a year, calculated as follows:
ConvertKit is always looking toward the future. When the company makes a profit, it ensures there are enough savings in the bank to cover three months of expenses, some money is set aside for taxes, buybacks, equity, and charity donations, and the rest of the company's profits goes into a pool for distribution to employees.
52% goes to the team, 40% to ConvertKit's owners, and 8% to leadership. Of the 52%, employees receive contributions based on how long they've been with the company (25% of the 52%), and the remainder is split equally.
Procter & Gamble is a notable profit sharing plan example because of how long they've been rewarding employees.
P&C has been sharing its profits and contributing to employees' retirement savings for over a century. The original profit sharing plan was implemented in 1887 by William Procter and James Gamble. It was a novel initiative back then - almost unheard of - but the founders of P&G wanted to reward their employees.
It has changed significantly since the 1800s, but P&G still pays eligible employees a portion of their profits.
The formula used to calculate the profit share considers:
Once calculated, the employees receive their slice of the profits as a cash bonus. That means they can use the money however they want.
Walgreens makes use of a deferred profit sharing plan in which they contribute to employees' retirement accounts. The Walgreens profit sharing plan was first adopted on 1 January 1990.
Once an employee joins the Walgreens Retirement Savings Plan (a 401(k) savings plan), they can contribute a percentage of their own salary to the plan (with a contribution limit matching the annual IRS limit), and Walgreens matches 100% on the first 4% that an employee defers to the plan.
Employee contributions are automatic through payroll deductions.
But, who is eligible?
Anyone over the age of 18 who is employed by Walgreens can immediately join the program. Walgreens will begin to match employee contributions once an employee has worked 1,000 hours within the first year.
Stellantis has been in the profit sharing game since 1985, when a plan was negotiated between Chrysler and the UAW.
Both full-time and part-time employees in the U.S. are eligible, from the very first day of their employment.
The Stellantis profit sharing formula is based on the profits of their U.S. operations (including any subsidiaries that operate within the United States).
The company's profits are shared using a Return on Sales formula in three steps:
Like Walgreens, ABC has a deferred profit sharing plan in the shape of a retirement plan.
Employees are encouraged to contribute to their retirement plan (as automatic deductions from their paychecks) before taxes. Employees can contribute anywhere between 1% and 100% of their monthly salary to the retirement plan. However, IRS dollar limits apply.
ABC Stores then contributes 25% of the first $1,500 that an employee contributes to their plan, up to $375 each year.
Eligible employees are those who have worked at the company for over a year and over 1,000 hours.
So, now you've seen some real-world profit sharing plans. But, why should you consider implementing a plan in your company? There are plenty of benefits of profit sharing, as discussed below.
Any contributions that an employer makes to a profit sharing or 401(k) plan are tax deductible. This means that when sharing profits with the team, the employer's tax liability is reduced.
Employees also get to enjoy tax benefits. A deferred plan's funds can compound tax-free. Once employees withdraw the funds after retirement, they will avoid large tax payments.
If employees see the financial benefits of their hard work, they'll be more willing to work harder and achieve company goals.
Employees are much more likely to take on additional tasks that contribute to the company's success since they will get a portion of this success as a cash bonus or future savings.
This is a clear benefit to employers, as satisfied and motivated employees are more loyal, resulting in improved employee retention.
And it is not just hearsay. A study with more than 40,000 participants showed that workers get a sense of ownership and belonging when they are part of a profit sharing plan.
One major benefit of a profit sharing plan, which is linked to employee motivation discussed above, is that the interests of the employees and the company become aligned. By earning a share of the profits, employees are more willing to work toward business goals, which drives the company forward.
A case study done by the Harvard Business Review on Huawei's profit sharing plan found that by sharing profits, the productivity of the team is boosted, which is a catalyst for company growth.
If you are looking to acquire new talent, a profit sharing plan can make your company stand out from the competition, making it a more attractive option for potential employees (while also retaining existing top talent).
Another successful example of profit sharing is implemented by Delta. The Delta profit sharing plan shares 10% of the first $2.5 billion of annual profits with the team, which is why Delta has so many loyal employees and a low employee turnover rate of 7.8%.
Profit sharing is the practice of sharing a portion of a company's earnings with employees. There are many different types of profit sharing plans, although it is most often paid as a cash bonus.
The main aim of a profit sharing plan is to increase employee motivation and retention by allowing staff to benefit from the success of the business.
While the specifics of the payouts and formula used to determine each employee's share differs between companies and industries, the goal of a profit sharing plan remains the same: giving employees a stake in profits.
By making employees profit sharing partners, companies give staff incentives to contribute to the bottom line.
Common profit sharing distribution schedules include payments made annually, semi-annually, or quarterly. The exact payouts depend on the company's policy as well as the profits.
Most businesses opt for annual bonuses which are paid each new fiscal year once final revenues have been reported. However, some start-ups experiencing rapid growth may opt to pay out quarterly.
Generally, companies decide on less frequent payouts, as it creates a greater incentive for employees.
Payout schedules are customized to each company's needs, but take into consideration:
Even with real-world examples, it can be tough to implement your own profit sharing plan. But, it doesn't have to be.
ShareWillow has compiled a FREE profit sharing plan template that takes the headaches out of profit sharing management processes. This template is easy to use, simplifying your profit sharing plan and offering you an automated, transparent, and efficient way to calculate your profit sharing contribution.
This is a template for board consent approving a profit sharing plan.
Download for freeFind out how to set up profit sharing for employees, calculate bonuses, and understand the benefits for team motivation and financial security.
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