ECONOMY

Profit distribution to workers is good for a firm’s health

Public opinion as well as wise entrepreneurs were satisfied with Economy and Finance Minister Giorgos Alogoskoufis’s statement that «the profits of companies are not an end in themselves; they only matter when they contribute to investment, development and the improvement in employees’ living standards.» Wise entrepreneurs were satisfied as their experience has taught them that no business can survive the competition unless it pays its executives and employees well. Good enterprises traditionally offer bonuses: For the third year in a row, the National Bank of Greece (NBG) has distributed bonuses to its staff while Hellenic Petroleum and EFG Eurobank have also given their employees bonuses this year. Economic science values profit and considers it a sign of financial health as profits generate new investments and new jobs, the state collects taxes and a number of investors receive dividends. For instance, out of the 730 million euros of NBG’s profits in 2005, 240 million euros went into the state coffers as tax revenues, 340 million euros were distributed to at least 250,000 shareholders, 110 million were reinvested and 40 million euros were given to the staff as a personal motive to increase productivity. The distribution, therefore, of some of the profits to the human resources of a company is in harmony with liberal economic theory and is common practice among major enterprises, even for those following the Anglo-Saxon model of business administration. In the USA, the UK, particularly in Scandinavia and even in Central Europe where corporate social responsibility is long-established, it is expressed through bonuses to the staff and programs for the environment, culture and so on. In Greece’s public sector and a large number of old-fashioned private companies, salary raises depend simply on an employee’s years of service. As a result, the culmination of the salary scale comes close to the employees’ retirement, which is usually disproportionate to their abilities. In other words, there is linear development in salaries. This model actually does nothing to encourage the staff’s motivation; it is a Soviet-type model that deters employees of initiative from using their brain and skills for the benefit of the state or the company. It is no coincidence that civil servants choose to do as little work as possible since they see no meritocracy. In contrast to this model of misery, senior and managerial staff in Greece, as well as in most countries, are paid according to performance. If an executive earns 2 million euros per year, then he will most likely also receive a bonus at the end of the year as an incentive; otherwise a rival company may lure him away. Beyond executives, when profits are good the distribution of some of them to employees on an equal basis is a very wise move. This distribution, besides offering staff the moral satisfaction that their efforts are recognized, is also a strong motive toward increased productivity.