Are you looking for ways to boost the performance of your farm workers? You should consider implementing a profit-sharing system.
Keep reading to find out more about this strategy that can help you show your employees how much you appreciate their efforts and contributions.
What Is Profit Sharing?
This is a system where you share a certain percentage of the profits your farm makes with your employees. This is a great way to acknowledge that your workers’ hard labor contributes to your farm’s success. Also, profit sharing gives extra motivation to your workers to do their best every day since this empowers them to increase their income through a collective effort. While bonuses due to superior performance may seem to be subjective and even lead to disparities between employees, profit sharing is a formula-based approach that is objective and unbiased.
A quote by David Wray, the president of the Plan Sponsor Council of America, summarizes the essence of profit sharing: the primary goal of this strategy is “to generate goodwill and a feeling of partnership” between you and your employees.
What Are the Key Goals of Profit Sharing?
In a nutshell, profit sharing aims to motivate your employees to bring their best selves to work day after day, to increase your workers’ commitment to your farm, to encourage collaboration and teamwork, and to help your employees save money for retirement.
What Are Different Types of Profit Sharing?
Now that you are thinking about implementing a profit-sharing strategy on your farm, you should consider several options.
A standard profit-sharing strategy is when you share a percentage of your profits based on your farm’s profits.
A gainsharing strategy is when you establish a baseline level of productivity and then share a percentage of profits that were made due to improvements over this level. When it comes to defining the baseline level, teamwork is essential. In fact, the gainsharing strategy originated in the 1930s, when Joe Scanlon helped spread the idea that people who are the closest to the problem are best equipped to help solve it. So, when establishing the benchmarks for improvements, you should listen to what your workers have to say.
If you want to implement a cost-savings strategy, you will share a percentage of revenue that you saved due to increased cost-saving efficiencies or lower operating costs comparable to a baseline year. Once again, finding ways to optimize your work operations is best done in consultation with your workers.
What Are Key Considerations before Implementing a Profit-Sharing System?
You should keep in mind that profit sharing is the most effective if combined with a more immediate cash bonus system. In that case, if you want to add a deferred profit-sharing plan when your workers get tax benefits for retirement savings, you might also want to consider coupling this strategy with a more immediate reward.
You should also clearly explain the connection between employee performance, farm profits,
and the profit-sharing bonus for best results.
If you need assistance with implementing a profit-sharing system on your farm, South Star Wealth Management is ready to help. Contact us today!