Can a Proprietorship Firm Share Profits with Long-Time Employees? Seeking Urgent Advice

Hi. A bit confused.... Wanted suggestions as conveyed in my earlier post, our firm is a proprietorship company. Now, my boss wants to give a share of profit to some of our old employees who have been working with us for a very long period. Is it possible to do so? If yes, kindly provide me a letter or any format wherein all these points can be incorporated with its benefits and losses. Please do the needful as it is very urgent...

In these days when employees and employers alike just look to 'use' the other, your employer surely is an odd-man-out, a very pleasant one at that. It also goes to show that when the individual's intent is fair and equitable, the company doesn't have to be an MNC, etc.

To add to what Nathrao suggested vis-a-vis the criteria, suggest not taking the designation into consideration. This will negate whatever goodwill this step can generate. Every employee would have put in his or her efforts commensurate with his or her role. Usually, any such payments by organizations are given as a percentage of the current CTC. That will ensure the designation issue is bypassed.

The primary criterion would be the number of years served. A secondary criterion can be how many promotions he/she received during the tenure (more means a higher amount—without saying so, performance is being taken into account here).

As far as naming the payment is concerned, Ex-gratia payment is one option. But if you wish to make it more personal and effective, maybe "Thank you Bonus" or "Loyalty Bonus" or some such terms. However, please take the advice of your CA—the term you finally choose should consider employees' perception and avoid any IT bottlenecks, both for employees and the company.

There's one thing that also needs to be thought of—is this expected to be an annual affair or a one-time affair? After discussions and decisions with finance, HR, and your boss, suggest formulating this into a clear policy without any scope for ambiguity later on.

Regards,
TS

Dear Mrs. Gauri M. Khan,

I have a slightly different take. My views are radically different.

Performance Over Tenure

Your "boss" has come up with a proposal that suits a proprietor more than an entrepreneur. Your "boss" is more of a boss than a business leader. Rather than rewarding the length of service, let your boss reward performance. Your company (or any company for that matter) progresses because of people who have performed well. What is the guarantee that a long-standing employee has performed well?

Challenges in Proprietary Concerns

For a proprietary concern, getting the right manpower is a challenge. Against this backdrop, those who stay, those who remain loyal, those who show allegiance to their boss rather than their job, etc., become valued employees. While distributing profits, if you make the length of service a criterion, can you be sure that they are all efficient employees?

Employee Commitment Types

By the way, in this 21st-century culture, why do people stick to a proprietary concern for a long time? Do they lack career aspirations? Are they lacking confidence? A confident employee would have moved on long ago. Therefore, please check whether the employees are serving because they have nowhere else to go. There are three types of commitments that employees show towards their organization: affective, normative, and continuance. While rewarding employees, make sure that you do not reward those who have continuance commitment.

All the best!

Regards,
Dinesh Divekar

I think there's some mix-up of issues from your end while dealing with this topic, which is a bit rare for you.

With regard to your line "Rather than rewarding the length of service, let your boss reward the performance," there are Annual Performance Reviews and salary hikes to take care of the typical performance issues. This is supposed to exclusively focus on those with a long tenure.

And, without generalizing it, the chances of Performance reviews being more focused only on performance rather than politics or other issues clouding the reviews are much lower in Proprietary Concerns, relatively speaking, for the simple reason that here the number of layers between the employee and the Top guy (and consequently the chances of other issues coming into the decision-making process) are relatively lower than in larger Companies.

This was the reason for my suggestion about including Performance-related criteria as a 'CAN be' AND indirectly, else the employee focus is likely to move from the profit-share reward to other issues. Why give a scope for such situations at all?

In reference to your lines "While distributing profits, if you make length of service as a criterion then are you sure that they are all efficient employees?...moved long ago," I think that's an over-assumption to make of THIS Concern/Company.

Further, that's also an assumption no one can make for even MNCs or super-large Corporations. I know of many persons, at different levels, who work in Top-notch Companies, including Mega-Corporations (both IT & Non-IT), who fall into this category. They haven't moved for different reasons, surely not because they weren't efficient or confident.

And herein lies the catch, or rather two catches.

Firstly, the standard line in HR is: "A person leaves the Manager, not the Company." So not all people move from smaller Companies/Concerns to bigger ones just because they are confident or efficient.

The very fact that this Concern/Company where Mrs. Gauri M. Khan is working is even thinking of rewarding those with longstanding innings here proves that (1) the Company has cash and is doing well, (2) at least a majority of those who are working here are performers, else there wouldn't be profits to share, and (3) the Boss seems reasonably well-considered by the employees, else there wouldn't be many employees who would be long-timers.

The Second Catch is: employees who currently exhibit 'continuance commitment' may not necessarily have been so from the beginning; in fact, they wouldn't have been. The reasons why smart/efficient people slowly change to an attitude of continuance commitment don't just depend on them alone. The Organization too contributes quite a bit for such a transformation of the employee, in different ways.

A classic example of this scenario, to those following the Company for the past decade or so, would be Infosys.

For a Company that was the Bellwether of the Indian IT industry for over a decade, if not more, everyone had to see the situation of the Company slipping in almost all benchmarks & NRN having to make a brief comeback & eventually Vishal Sikka taking over. The team, not just the Core Team, was much the same earlier when the Company was doing great and when things began to slip quite badly.

Whether one likes it or not, 'continuance commitment' creeps in over a period of time in any and every Organization, big or small, and all over the Globe.

I recollect your postings regarding PMS in many threads, and I think that's where regular review/revamp of PMS, which too I think you had mentioned in a few threads, becomes important.

Ideally, employees with 'continuance commitment' shouldn't be allowed to exist at all, but in reality, ignoring (the Best-Case-Scenario) or firing (the Worst-Case-Scenario) such employees becomes too tough from the HR angle, at the individual HR Person's level.

At the end of the day, it's quite easy to say things like 'ignore/fire them' from the sidelines, but as you know, it's extremely tough for those handling such situations at the spot.

And that's where the HR person's role becomes so very important, handling such situations with the needed finesse and win-win strategy under stressful/tricky conditions.

Regards, TS