MISSIONTO CONTRIBUTE IN THE STUDY AND PROMOTION OF SOCIAL JUSTICE. (In particular profit sharing)
STRATEGY FOR SUSTAINABILITY To develop a profit sharing system that is both advantageous to the owners of business and the employees. A system that results in better net profit to the company and a much larger total compensation for the employees. A win win formula. In the end society benefits.
50% PROFIT SHARING WITH EMPLOYEES BENEFITS ALREADY INCLUDED
PRINCIPLES1. In any economic activity, there are always two partners that are necessary: employees and capital. One cannot exist without the other, thus both deserve a share on the fruits of there’s partnership.
2. Before sharing the profit, we must satisfy the basic need of each partner. Employees need to receive a regular income to maintain their physical and mental health. On the other hand, capital needs to receive additional funds to correct its value due to inflation.
3. In any business organization, weight of responsibility differs on each category of position. Supervisor has more responsibility than his subordinates. Auditor has more responsibility than a clerk.
Also, since there are manyfactors that affect individualperformance such as talents,motivation, skills, attitude, age andphysical condition, each individualdiffers in performance from eachother. Thus compensation toemployees should also be based onWeight of responsibility andperformance
BASIS FOR PROFIT SHARING DISTRIBUTION1. Weight of responsibility (Job Levels)2. Performance
COVERAGE All regular employees from the lowest up to the highest level
EXAMPLE OF INCOME STATEMENT USING THEACCOUNTING SYSTEM WITH 50% PROFIT SHARE
STEP 1. INCOME STATEMENT USING CONVENTIONAL ACCOUNTING SYSTEM (in thousands of pesos) Sales 64,918 100% Cost of Sales 38,950 60% Gross Profit 25,968 Less Operating Expenses: A. Salaries & Wages 9,100 Rental Expenses 2,952 Others 8,212 20,264 31% B. Employees Benefits: SSS employer share, Retirement Funds Contribution, SL/VL conversion, Christmas party, etc. 2,036 3% Net Income 3,668 6%
STEP 2. INCOME STATEMENT USING 50% PROFIT SHARE ACCOUNTING SYSTEM (in thousands of pesos) NET PROFIT BEFORE TAX 3,668 ADDBACK : Employees Benefits 2,036 NET INCOME 5,704 LESS: INFLATION ALLOWANCE (Equity x Inflation Rate/Tax Provision) (P14,953 X (2.8% / .067) 625 NET INCOME FOR PROFIT SHARING 5,079 EMPLOYER SHARE (50%) 2,540 EMPLOYEE’S SHARE (50%) 2,540
STEP 3. COMPUTATION OF EMPLOYEES PROFIT SHARE (in thousands of pesos) EMPLOYEE’S PROFIT SHARE 2,540 LESS: Employees Benefits (as advanced by the company) 2,036 NET CASH FOR DISTRIBUTION 504
STEP 4. NET INCOME FOR THE COMPANY (in thousands of pesos) COMPANY’S PROFIT SHARE 2,540 ADD: INFLATION ALLOWANCE 625 NET INCOME 3,165
ADVANTAGES1. Compared to a company with no profit sharing, all other things being the same, in the long term (at least ten years), the company’s total profitability will be better. The following are my bases. a) A period of more than 20-yr. test (1987–present). b) Employees engagement study – defined as the measure of emotional connection that an employee feels for his organization that influences the employee to exert greater discretionary effort to his work. Worldwide average is 12%. Only one in seven employees worldwide is fully engaged and willing to go the extra mile for his company. (www.management-issue.com) c) Proverbs 11:24-25. Some people spend their money freely and still grow richer. Others are cautious, and yet grow poorer. Be generous, and you will be prosperous. Help others, and you will be help.
2. It is less difficult to manage the employees3. It can do away with some of the stressful part of a CBA
4. Profit sharing is contributory to social justice and therefore to long term peace5. Evangelization of the employees will be more effective (For Christian businessmen)
RESULTS1. The principles holds for the last 24 years. In the words of a friend, Vic Villegas: “The sustained long-term viability of the business appear to be avalid empirical evidence.”
2. Average Return on Equity from 1987 to 2010 is 34% after tax3. Cash distributed to employees from 1987 to 2010 is about 24M
CONCLUSION• The devil is afraid of social justice.• Let us not forget that we still belong to the early Christians. C.S. Lewis