implementing gainsharing/profit sharing and employee stock ownership programs for
vested individuals, which help direct behavior toward
product and process innovations that improve
performance.
Gainsharing is a performance incentive plan that
rewards employees for increased productivity, while
profit sharing focuses on distributing financial rewards
based on overall company performance. Gain-
sharing programs can be implemented at the
individual and group levels, and because employees
are rewarded for their own contributions, they may
be more likely to expend efforts on innovative
solutions to improve the company. Complementing
gainsharing allotments, profit sharing rewards the
combined efforts of everyone in the company. To-
gether, these programs benefit the organization
because they promote connection to the organiza-
tion, encouraging employees to become invested in
their jobs and exert effort beyond basic expecta-
tions. Ultimately, these efforts can lead to more
employee-induced product- and process-oriented
innovations and help reinforce an entrepreneurial
culture. Trident Systems, a veteran-owned small
business offering consulting services to major U.S.
Department of Defense contractors, uses a profit
sharing plan that distributes a significant portion of
the company’s profits to employees on a basis of
merit. Not only has the program increased attention
to the firm’s profit margins, but it has also increased
employees’ aggressiveness in seeking out new business
opportunities and generating additional contracts
(National Research Council, 2009). Such
programs are ideal for SMEs because they encourage
innovation and entrepreneurship among employees,
yet rewards are only doled out when employees
enact actual gains or during successful years.
Because sales levels fluctuate for many smaller
businesses, management can also engender the
commitment of employees by offering stock owner-
ship opportunities. Issuing stock to employees represents
the truest form of job ownership; as partial
owners of the company, staff members are more
likely to care about the long-term viability of the
organization, increase their willingness to develop
and explore innovative ideas, and engage in innova-
tion-oriented activities. This form of compensation
offers employees the promise of bigger payoffs in the
long term for taking entrepreneurial risk and cham-
pioning innovative initiatives. Rewarding vested employees
(as determined by years of service or
successful entrepreneurial contributions) with own-
ership may also offset shortfalls in standard compen-
sation packages when small businesses are unable to
offer competitive pay levels. Many firms have used
this practice as an impetus and reward for risk taking
and accordant growth. For example, the Belgium