Drive profits by giving workers a cut, businesses told

Schemes, such as the one implemented by John Lewis, can also increase the bottom line, says IPPR study
  • @emilydugan

Big businesses could be more productive if they gave staff a share of the profits, research out today shows.

Schemes such as the one implemented by John Lewis – where staff benefited from a £410m profit share this year – can also increase the bottom line, a study from the Institute for Public Policy Research (IPPR) says.

Companies with 500 or more employees should also consider moving to a profit share model because it improves team building and relationships between staff and managers, researchers claim. Employees tend to work harder and absenteeism is lower in companies that use profit-sharing and other similar reward schemes.

Kayte Lawton, senior research fellow at IPPR, said: “Profit-sharing makes sense for business and for employees. It aligns the interests and incentives of owners, managers and workers.

“When everyone is focused on driving up profits, staff tend to work better together and get on better with managers, so productivity improves. Unlike traditional industrial relations, which too often pits workers and management against one another, profit-sharing enables working people to earn a greater share of financial rewards. The risk to companies is reduced and staff only receive a pay-out if profits hit a certain level.”

More than eight million people – or 43 per cent of all employees – work in the 3,000 private sector companies in the UK with 500 or more employees. If more of these companies offered profit shares, employees could benefit by hundreds of pounds each year.

Business Minister Jo Swinson said: “As we rebuild the economy, there has never been a more important time to support different ways of running a business, particularly those that boost staff retention, innovation and the motivation of employees.

“That is why the Government has been making it easier, through guidance and by consulting on the introduction of tax incentives, for businesses of all sizes to adopt employee ownership.”