Canal Bio, France: Make work pay – make work attractive
Canal Bio is a grocery shop with 18 employees. Two years ago, in place of a payment of two bonuses during the year, employees accepted, after initially rejecting, the introduction of a profit-sharing scheme. In spite of some administrative problems, the profit-sharing scheme is important for employees and allows them to become more involved in their work.
Canal Bio was established in 1995 and is a limited liability company. The number of employees has increased steadily: Canal Bio started with four employees in 1995, then went to five or six in 1996 and now has 18 employees. Eleven of the employees are women and seven are men.
The management level comprises one managing director and three general managers (two women and one man; one of the women has the highest salary). Salaries are relatively low: from 8.10 euros gross per hour (minimum legal wage is 8.03 euros) to 2,900 to 3,000 euros gross per month. For example, supervisors earn about 1,900 euros gross per month. The working time within the company is 35 hours per week.
Employees’ interests are represented by one workforce delegate; however, none of employees are trade union members. The company is a member of Biocoop, a private organisation of companies that operate in the sale of organic products. Biocoop has drawn up a charter defining collective rules related to management (including employment relationships) of affiliated companies. Social dialogue consists of a meeting for 15 minutes each between management and employee volunteers. In 2006, at the request of employees, a paid meeting outside of working time was introduced. The attendees are the employee volunteers and management; part of the meeting has an agenda and part is for free discussion. The formalisation of discussions favours the circulation of information.
Description of the initiative
The idea of profit-sharing occurred after making a profit after a few years of losses, and was based on the accountant’s specialised knowledge of the subject. In 2005, net profit after tax and profit-sharing was 2% of turnover (Biocoop’s goal is 1%). The introduction of a profit-sharing scheme at Canal Bio has basically two functions: a social function (in line with the Biocoop project and charter) and a financial incentive, due to tax deductions. Since the additional payments are exempted from social security contributions, the employees effectively have a bonus in addition to their salary. Moreover, the profit-share scheme is linked to a company savings plan, i.e. employees can choose to receive or to save all or part of the sum due, with the possibility to switch between the two options from one year to the next.
The profit-share agreement was signed for three years with the possibility of making amendments in the intervening time. It has to be signed by all employees, approved by a majority and declared to the regional director of work and employment, with each amendment following the same procedure. The profit-sharing, i.e. the amount allocated to each employee, is proportional to wages but is also based on seniority and working time. All of the employees therefore benefit from profit-sharing but do not receive the same amount. No other kind of individualisation is possible, in compliance with statutory law about profit-sharing. Two criteria play a role: the increase in turnover and the level of profit. In 2005, with less growth than in 2004, the accountant’s job was to reverse the growth and profit ratios in order to maintain and even provide a small increase in the overall cover and redistribution.
Prior to the present profit-sharing scheme, Canal Bio paid two bonuses, based on profits and seniority, per year: one in Summer and one at Christmas. Employees preferred these fixed bonuses; thus, profit-sharing was a difficult notion to communicate to employees. Unlike bonuses, the management argued, the profit-share was exempted from social security contributions and employees would actually receive more with the profit-sharing scheme. Due to a lack of appropriate communication from the management level, the scheme was initially refused by the employees. Eventually, however, the new scheme was accepted by all employees when this communication problem was corrected. The agreement was signed in 2004 and the first distribution followed in 2005.
On the one hand, the scheme is more complex, as a number of factors influence the level of profit share: composition of profit share, modes of allocation, seniority, different employee groups, company saving scheme and tax deductions. It is a fairly large project for a small company, but it corresponds with the recommendations of Biocoop and the company’s philosophy. Due to this complexity, it was difficult for management and the employees to communicate the new profit-sharing scheme and to underline the benefits compared to the previous bonus system. On the other hand, with the previous bonuses, even if the system was relatively objective, there was a possibility for individualisation, which is not possible in the profit-sharing scheme. The company continues to conduct evaluation interviews, but their purpose is restricted to career development and prospects of the employees in the company and not to the pay system.
Apparently, employees preferred to receive the type of Christmas bonus they had been used to in the past. The profit-sharing scheme actually planned to pay out the profit share in June/July. Reluctantly, as it burdened the profit-share, management reintroduced a Christmas bonus, and in doing so, took advantage of a measure which, in order to encourage customer sales, allows for the payment of a nonindividualised bonus deducted from contributions. Management explained to employees that this would not last. Employees, therefore, currently benefit from a profit-sharing scheme but no longer receive annual bonuses, which were distributed to them before the profit-sharing agreement was concluded. Employees criticise regularly that the profit-share scheme leaves no possibility for individualisation because some employees work less than others or are less involved
The difficulties of the scheme are not very attractive, although, from a financial perspective, the tax deductions and the prevention of malpractice easily justify profit-sharing, it contains some weaknesses as well. For example, usually each employee must sign the offer as the payment doesn’t appear on the pay slip, thus employees could be left out if they were not notified.
Canal Bio’s objective was to make work financially more attractive to its employees. Moreover, the profit-sharing policy complies with the recommendations of the Biocoop network, of which Canal Bio is a member.
Profit-sharing is, from a strictly financial perspective, a favourable option; however, it requires a high degree of transparency for the employer and employee. If the share doesn’t improve, it becomes an issue for the state-of-mind of employers and employees, as it requires transparency. It requires work on explaining profit-sharing, which is a burden on profit-sharing in the short term. There is no question that profit-sharing is a very interesting financial opportunity for employees. Canal bio works on transparency and has not had to change its practices, but in a company not used to working this way, it would involve a significant cultural change.
In the end, the profit scheme allows employees to participate in the success of the company. The level of the profit-share depends on the company’s success. Thus, profit-sharing is an excellent lever, as the distribution is through an objectively obtained result. It constitutes a complementary bond between employer and employees, and creates a form of overall team spirit. Rather than being in competition with a colleague, employees are encouraged to find ways of working better together to achieve better overall results. This atmosphere is good for the company. Additionally, the profit-sharing plan has also initiated the elections of employee representatives (one representative and one deputy) even though the size of the company doesn’t legally require this.
The full impact of the scheme on employment relations and work as a whole is not fully apparent at present, but positive developments are being realised . For example, employees are more attentive on the issue of theft. As employees become more involved in company direction, there is a greater closeness between employees and the company. Even though transparency existed before, employees are now more interested in what management is doing. Employees, however, find it difficult to accept that their profit share can decrease, since the previous bonus system set fixed payments, independent of the company’s success. In 2005, the bonus for 2004 was the equivalent of one-and-one-half month’s salary for each employee, which is more than the average, and it should be increased this year (32,000 euros paid for 2004 and 39,000 predicted for 2005).
The introduction of profit-sharing at Canal Bio is a policy of goodwill. Profit-Sharing doesn’t prevent profitability; on the contrary, it affects the employees’ awareness of the company’s overall performance and initiates a process of rethinking. In spite of this, however, very small companies may struggle with the complexity of profit-sharing schemes and the risks of miscommunication.
Exemplary and contextual factors
In France, companies with more than 50 employees are legally obliged to introduce financial participation schemes. Profit-sharing, established in 1959, is optional and the social partners choose how it functions. Although Canal Bio, with only 18 employees, is not obliged to do so, it voluntarily offered a profit-sharing scheme. Canal Bio is atypical of companies making agreements. Small companies that have developed one of the three schemes (participation, profit-sharing or company-savings schemes) have a higher than average number of employees and tend to be concentrated in the service sector (banks, insurance, IT services and company advisers).
Frédérique Leblanc, National Centre for Scientific Research (CNRS), Paris