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The Guardian: Work: Question of the week: Do employees ever see a cut of record profits?

Feb 4th, 2006
by admin.

MATT KEATING
Feb 04, 2006
The annual profits record for a UK-listed company was broken this week when Royal Dutch Shell announced it had generated profits of pounds 13.12bn in 2005. The Anglo-Dutch energy giant's results follow a year in which the cost of crude oil jumped from below $45 (pounds 25) a barrel to above $70. But do record profits mean record profit-sharing for Shell's employees?
Most will share in the success through a bonus structure that also factors in an employee's performance, says the company. “The amount paid as a group component is based on a scorecard system,” says a Shell spokeswoman. “This takes into account financial measures, operational performance and sustainable development.”
The proportion of its billions Shell will share is not clear. Neither is the prevalence of profit-sharing schemes in the UK generally – although their number increased rapidly during the 1980s and 1990s. “The general consensus then was that the big rise in profit-sharing was partly owing to the tax incentives being offered to companies,” says Professor Stephen Machin at University College London.
Last year, the John Lewis group made pre-tax profits of pounds 216m, of which pounds 106m went into its profit-sharing scheme. This meant every permanent employee, from the chief executive to warehouse staff, received an extra 14% of their annual salaries.
“The profit scheme ranges from 8% to 20%,” says Helen Megaw at John Lewis. “The amount that goes into the scheme is decided by the partnership board, which takes into account the company's performance and the need for investment and development.”
John Lewis is the largest example of worker co-ownership in Britain; all 63,000 of its permanent staff are partners in the business. And the generosity of its profit-sharing is rare.
“Profit-sharing schemes remain fairly unusual in the UK,” says Professor Robin Wensley at the Warwick Business School. “I believe that profit-sharing goes with a certain type of company that makes profits anyway, rather than a scheme having a direct effect.”
Others agree that the impact of profit-sharing on performance is difficult to discern. “It could well be that employee involvement schemes -such as quality circles, joint representations and consultation programmes – are possibly causing the better performance, rather than the profit-sharing schemes,” says Professor Keith Whitfield at the Cardiff Business School. “But if you give workers extra responsibility and involvement in decision-making, they will want to be remunerated for this.”
The TUC says companies should always share success with all their workers. “But profit-sharing schemes may become a problem when they constitute too much of an employee's pay packet,” says a spokesman. “Employees should not have to pay through their pay packets for management errors.”

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