Why do you think profit-sharing and lump-sum provisions have increased in usage in recent years while COLAs and wage reopeners have decreased in use?

Answer 1

I believe that the use of profit-sharing (or lump-sum provisions) over cost-of-living Allowances and wage re-openers has been driven by companies rather than employees. Most employees who are willing to gamble on their compensation being tied directly to the success or failure of a company would most likely be business owners rather than employees of a business. However, there are advantages for the employees as well. They benefit directly as a result of their productivity. They also suffer if profit sharing is a large part of their compensation package. Employers like the advantage that paying out profits means that the company is most likely doing well. Profit sharing does not affect the future payout of compensation like COLA and wage-reopeners do by immediately obligating the company to compensation regardless of company profits. And unlike COLA, profit-sharing is not tied to the rate of inflation. Although neither COLA nor profit-sharing gives the company much protection in forecasting labor costs, it is much easier for the company to forecast its own "economy" than that of the market and inflation. I do believe that many employees, having been a part of the great increase in investing, have a better entrepreneurial mind and understand the logic behind getting a piece of the company rather than just being a piece of the company.