We get a Christmas advance on the profit sharing every year, with the balance coming about six months later. We refer to this as the "bonus induced lobotomy": we slave away, building resentment toward the demands of customers and of the business, the stress etc. Then every half year they hand you an envelope. When you open it, a scalpel leaps out and cuts away the resentful part of your brain...
We get the pay cut every month in the form of a below-median salary- or at least that's how it's supposed to work in theory. The bonus tops us up to above median if we meet the company's expectations for profit. There's a stick as well as a carrot that way- our fixed costs are kept low and we only pay ourselves better if we deserve and can afford it by making more money for the company. If we exceed that target, which is based on an industry norm, an increasing fraction of the unanticipated profit ends up in the bonus pool. Beyond a certain level, the employees get ALL of it.
For all but one of the years I've been with my company, we've done somewhere between well and ridiculously well. During that slow year, when the tumbleweeds were blowing through our producton floor, there was no bonus and only cheese and crackers in the lunchroom instead of a Christmas party- but we kept everybody. Given that the year AFTER that one was one of our best years on record, hindsight shows that it was a brilliant business decision to keep people through the loss- but at the time, most of us expected that the layoffs would come any day. The loyalty shown by the business doesn't go unnoticed by the employees, and shows up in staff retention.
The employee's share of the bonus is based on how the business does, not how your project does. Sometimes your job is to make vinegar from the sour grapes you're handed, and you don't get punished for that. There's discretion in there for management to recognize good or bad performance, but they can't choose to take it all themselves. Employees here have ownership and get the financials, so we're a little harder to rip off than might be true in a larger business.
As MacGyver says, it only works if the employees can see how their efforts affect the bottom line. It works brilliantly in our business- on average. It motivates the high performers to a large extent. It doesn't work with everyone. Some quickly see it as an entitlement. Others value their own time and effort too highly, choosing to take the easy route in their work rather than innovating or putting in the extra effort to improve our bottom line. Unfortunately the proportion of people with those defects grows as the business does, which dilutes the effect for everyone.
