MAKING PROFIT SHARING
TAX-ADVANTAGEOUS
PRODUCTIVITY CRISIS IN CANADIAN BUSINESS
There is a productivity crisis in Canadian business and industry. Numerous studies have shown that the productivity of Canadian companies is seriously behind that of other OECD countries. The same studies also show that we are losing ground in the productivity race, especially to our American competitors.
HUMAN CAPITAL CAN MAKE THE DIFFERENCE
It is abundantly clear, with the advent of the new economy and the predominance of "knowledge workers", that the best way to increase productivity is to motivate your workforce to "work smarter, not harder". One of the best ways to do this is to use compensation systems which enhance the group performance.
COMPENSATION OPTIONS
There are two types of incentive plans that motivate improved performance of the corporate team: 1.ESOPs (Employee Share Ownership Plans) 2. broad-based employee profit sharing. One British study showed that companies with profit-sharing plans have 40.2% greater growth in profit than companies without profit sharing.
ADVOCACY
The Canadian tax system does not give any particular tax concessions to either profit-sharing plans or ESOPs. The American system is much more generous in the tax treatment of these types of compensation programs. For example, Canadian Deferred Profit Sharing Plans are restricted to a maximum contribution of $6,750.00 per year while the American equivalent (known as 401(k)) plans can shelter over US $30,000 per year.
Several individuals and organizations are advising the Canadian government to improve tax policy towards ESOPs including ESOP Canada, ESOP Builders and The Employee Ownership and Incentives Association.
