Profit sharing could boost UK productivity and company performance, says IPPR

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Profit sharing could boost UK productivity and company performance, says IPPR

Businesses with 500 or more employees should be encouraged to share profits among all their staff, according to a report from the think-tank Institute for Public Policy Research. The report says that profit sharing boosts productivity and improves the bottom line.

Perhaps the most famous example of profit sharing is in the John Lewis Partnership, where staff benefited from a £410 million profit share in 2013 – equivalent to 17% of salaries.

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The benefits of "shared capitalism"

The report argues that “shared capitalism” schemes like profit sharing, employee share ownership and employee-owned companies offer numerous benefits, including:

• strengthens team-working
• creates better relationships between staff and managers
• encourages employees to work harder
• reduces absenteeism.

IPPR says:

“Profit sharing could be part of efforts to rebuild a more productive, dynamic and sustainable British capitalism, and ensure that working people share in the rewards of success.”

Measures to promote shared capitalism

The report argues that government should ask representatives of employers, employees and investors to consider ways of advancing the use of profit sharing and other forms of shared capitalism in British workplaces.

This could include:

• Reintroducing income tax exemptions for profit-related pay, or making profit shares exempt from national insurance contributions.
• Allowing employee profit shares to be paid before corporation tax, effectively reducing company tax bills.
• Making profit sharing compulsory in some companies, for example in very large firms or in particular sectors.

A final word

“In an age of austerity, working people can no longer rely on the state to support rising living standards with more generous in-work benefits. We urgently need to find ways of boosting productivity in British firms over the long-term and ensuring that working people share in the benefits of this success.

“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.” - Kayte Lawton, Senior Research Fellow, IPPR and co-author of the report.

Want to know more?

Title: Sharing Profits and Power: Harnessing employee engagement to raise company performance, by Kayte Lawton and Tess Lanning, IPPR, August 2013.

Availability: You can download the 44-page report from the Institute for Public Policy Research web site at www.ippr.org/publication/55/11028/sharing-profits-and-power-harnessing-employee-engagement-to-raise-company-performance.

IPPR, the Institute for Public Policy Research, is the “UK’s leading progressive think tank”. For more information visit www.ippr.org.