“We first tried profit sharing in 2018. We had a super profitable year,” says Andy Hayes, managing director at Quietroom. 

Does profit sharing work, or is it unsustainable in today’s climate? Is it the fairest way to reward your team, or are there better alternatives?

“We had lots of money in the bank and we wanted to share it out a bit. We gave everybody about £10k or something silly like that, but we knew we probably couldn’t match this every year..”

It also meant they were able to give everyone on the team a consistent, performance based pay rise rather than a bonus, which tends to be the norm for agencies in the city.

“In January 2022 and 2023, everybody got a 7.5% pay rise to cope with inflation,” explains Andy Hayes, managing director at Quietroom. “But this year we matched inflation at 4% for the team. The directors got 2% to help fund performance based rises later in the year.

“Most people would rather have a pay rise than a bonus. Because you get a bonus when you do really well, but pay rises stay in your salary and you gradually move up the pay scale.” 

Pam Phillips, founder and managing director at de Jong Phillips, has a slightly different view on profit sharing.

“You need to ask yourself: why do you want to profit share? It’s usually to motivate your team or to tie them in because if you’re profit sharing, they’re more likely to stick with you for the longer term. After all, they’re bought into the company and getting rewarded.”

“But I think on the flip side, as soon as you do it, there’s an expectation,” she explains. 

“Really quickly, that first time you give someone a bonus or profit share, it feels great for them. But then they have an expectation of something the next year.  I wouldn’t be surprised if people are more often disappointed than pleased by their profit share.”

She argues that you need to be sure it’s a motivating part of the job, rather than a demotivating one, and striking the balance can be the trickiest part.

In this upcoming CFO Surgery, we’ll be exploring the question of profit sharing with Andy Hayes and Pam Phillips. What are the pros and cons? Is it something your company should be doing? Why has it become such a common practice recently?