04/ 02/ 2008
by Megan Pacella
I want to offer more perks to keep my employees in high spirits, but I don't have a lot of extra money to throw around. I'm considering a profit-sharing program. Is this a good idea?
Yes, says Kathy Boe, president and CEO of Boecore Inc., a technology services company based in Colorado Springs, Colo. Boecore enacted a profit-sharing plan in 2002, which was integrated into the company's safe harbor 401(k) plan to boost employee moral and retention--and it worked so well that the company uses the same plan today.
"We use a formula to determine an employee's profit-sharing eligibility to better align distribution with the individual's contribution to the company's profitability," Boe says. The only downside of the plan is that the one-year qualification period and five-year vesting schedule erase any chance of employees feeling instantly gratified with the program.
While Boe has found that the profit-sharing plan appeals to employees, she also recommends mixing the incentive scheme with a healthy dose of recognition in order to make employees feel appreciated. "We send a personalized letter at the end of each year to thank employees for their contributions, and it also denotes their distribution percentages," she says. "The distribution is always the icing on the cake because employees are so excited about financial gain, but they always appreciate the letter and the recognition they get for contributing to the company."
While current employees appreciate the prospect of profit-sharing opportunities, Boecore doesn't use the program to appeal to potential hires because of the long vesting period. "Integrating the program into our 401(k) was a good idea because of the long-term benefits, but it doesn't provide much instant gratification," Boe says. "If we could do it all over again, we probably wouldn't integrate it with the 401(k) so we could offer a program with more immediate benefits."
Employee retention is a top priority, Boe says, and adding a profit-sharing program helps keep workers around. "Reputation is everything for a small business," she says. "High turnover will negatively affect your business, and a profit-sharing program keeps people happy."
