I’ve been arguing in this column for a while now that large Canadian companies should have to share their annual profits with employees — and that it should be a cornerstone component of a new national economic charter of rights.
Some businesspeople have said to me the last thing they want is the government telling them that they have to give up some of the company’s hard-earned profits.
I can understand why they feel that way.
When I was the CEO of Magna International, we introduced a profit sharing program with my managers, employees and investors that gave each stakeholder group a pre-determined percentage of our annual profits. After introducing the program, profits skyrocketed.
My only regrets are that I didn’t establish profit sharing with employees sooner and that I didn’t make the percentage of profits shared even higher. I’ve experienced first-hand how profit sharing can turbo-charge productivity and profitability. It was the catalyst that drove our company’s growth over many decades, helping Magna become one of the world’s largest automotive parts suppliers.
But if we required all companies in Canada with more than 300 employees to share profits with their workers, would it be a net positive for business? Or would it be just another nail in the coffin for business in Canada, along with ever-higher taxes, never-ending regulations and red tape?
There are many reasons why corporate profit sharing makes economic sense. It can help companies retain and attract top employees. It can motivate employees to work harder — and think smarter — knowing that they’ll get a slice of the profits they help generate. And, most of all, when employees have a stake in the success of the company, everyone is in the same boat and rowing in the same direction.
Now, consider the bigger economic picture. The divide between the country’s managerial elite and its workers is growing larger and larger. What’s more, wage growth has been stagnant — with no prospect of improving anytime soon.
Earlier this year, the Organization for Economic Cooperation and Development (OECD) issued a forecast that contained a sobering prognosis of Canada’s economic outlook. According to the OECD, productivity growth experienced by Canadians will be the lowest in 40 advanced economies.
Meanwhile, a Desjardins credit union report from June showed that Canada’s GDP per capita — a key indicator of incomes and living standards — has nearly flatlined since 2015. In the Toronto Sun that month, Fraser Institute fellow Jock Finlayson wrote that Canada has become “a stagnant economy that’s no longer generating meaningful increases in real incomes for most citizens.” The chief culprit behind Canada’s sagging incomes seems to be labour productivity.
So how do we improve incomes for Canadians? The best way would be to make profit sharing an economic right. In fact, it would be a win-win for both workers and companies. Employees would benefit by making more money. And, by inspiring workers to find efficiencies and come up with new ideas, companies would become more productive — something Canada badly needs.
When a company is able to harness the driving forces of the business — management, employees and investors — and get each to pull in the same direction, it will be more productive and more competitive.
Unfairness in the workplace is corrosive to employee morale and productivity. When employees see companies racking up record profits while their wages remain frozen, they won’t put out more than the bare minimum required.
But when employees are given a stake in the company’s financial success, they are more motivated and more productive. It’s been a proven formula at Magna for many decades now, and it’s worked for many other Canadian companies as well.
Here’s the brutal truth: if we don’t make our economy more productive, and if we don’t find a way to raise the incomes of average Canadians, then our country will continue to slide further down the global economic ladder.
Profit sharing is an unbeatable formula for productivity growth and success. If it was implemented it on a national scale through an economic charter of rights, it could lift the incomes of hard-working Canadians who will otherwise face stagnant wage growth and a slowly deteriorating standard of living.
And it could make Canadian businesses more productive — the most compelling reason for Canada’s corporate sector to share profits with workers.