Profit sharing for everybody?

Nearly 90% of US companies tie wages to their business' performance, but worker pay increases have stagnated in the 20 years since the plan first drew attention.

By Jason Notte Sep 4, 2013 1:28PM
Image: Office worker (© Digital Vision/Getty Images/Getty Images)If you're a full-time employee of a large company and someone asks you how much you get paid per year, should the answer ever be "it depends?"

As Reuters points out, that's the stock response for employees of the 90% of U.S. companies offering variable pay plans. Call it performance-based pay, call it profit sharing -- even use the jargony "gain-sharing" if you'd like. In all its forms, variable pay tethers the size of employees' paychecks to a company's financial fortunes.

With a deep recession yielding to a plodding recovery, the "pay-at-risk" system is shrinking employees' paychecks as companies sputter. They're not only bearing more of the costs of their employer's misfortunes, but they're dealing with the fallout of decisions and reality that exist far above their station.

Only about 50% of U.S. companies used this system two decades ago, according to a survey of 1,100 U.S. companies by human resources consulting firm Aon Hewitt. Meanwhile, the money tied up in these plans has quadrupled, from about 4% of payrolls in the early 1990s to about 12% of payrolls today, according to Aon Hewitt.

So that has to be some incredible incentive, right? Surely workers are more supportive of their companies than ever and doing their best to make sure they succeed, no?

The reality is almost polar opposite. Gallup found that 52% of all full-time workers in the U.S. are not involved in their work, not particularly enthusiastic about it and are committed only as much as they have to be. And 18% of those folks are "actively disengaged" and have checked out to the point that they're actually a hindrance to co-workers and management.

Keep in mind, that's in an economy only one job is available in the U.S. for every three people who apply. The domestic economy has regained just 5.7 million of the 8.7 million jobs shed during the Great Recession. Worse, roughly 65% of those jobs are of the low-wage variety, though nearly 60% of all jobs lost during the slump paid middle-income wages or better, according to the National Employment Law Project.

To top it off, when these employee incentive pay programs first hit stride 20 years ago, employees saw annual pay increases of 5% on average. Today, even as companies claim to share the wealth with employees when business is good, the average employee is seeing only a 3% raise each year.

So where's all that extra cash going? Check the corporate suites, where contracts shield executives from the same fluctuations experienced by lower-wage workers when companies hit tough economic times. Just about anyone below their pay grade has watched their paycheck fluctuate with the economic tide, seen their stable pensions swapped out for more volatile 401k plans and watched their job security vanish when share prices stumbled.

So, have these variable payment plans helped worker pay and the overall corporate climate at all? As stated earlier, it depends.

More on moneyNOW
Sep 4, 2013 4:21PM
Nothing in life is guaranteed except dying and taxes !
Sep 4, 2013 11:53PM

I make a very good salary yet, I bitch because our CEO makes 10's of millions of dollars in bonuses every year and we haven't seen raises going on 5 years now.

Sep 5, 2013 1:24AM

We already have 'Profit Sharing'...  it's called BUYING shares.


Socialists want a share of the Profits, WITHOUT buying the shares.  They seem to believe they  are 'entitled' to the profits of legitimate shareholders. 


Give them nothing.  These LEECHES are the problem.

Sep 5, 2013 4:30PM
My mother is retired from the state. She has not seen a raise in her retirement in 12 years. Yet, everyone in State Employment from Governor on down has seen 5 raises in the same 12 years. People at the top better pray that the people below them never figure out that without them there would be no "People at the Top".
Sep 4, 2013 5:11PM
Bend over Bubba, it's just business!
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