ABSTRACT
The profit-sharing companies may have been earning above average profits before they introduced profit-sharing. Employees who work in a profit-sharing enterprise face a second source of risk, namely the competence of the management. The returns of the business will depend on the soundness of managers’ decisions as well as on environmental conditions. Profit-sharing will be particularly effective, because it gives employees an immediate, legitimate interest in improving the company’s performance. Low basic pay plus profit-sharing will keep the economy heading towards full employment because firms will constantly be hiring more workers whose marginal product exceeds their marginal cost. Profit-related pay changes the relationships within companies in ways which make them more cooperative and more efficient economic units. Profit-related pay has a further non-economic advantage: the potential to act as a poison pill that makes a company less attractive for take-over.
