Profit sharing plan : try a more educational approach

The legal calculation formula of the french profit sharing plan (the participation) RSP = ½ (B – 5% C) x S / VA has raised a multitude of criticisms for 55 years: too complex, unsuitable, obsolete, rigid, demotivating …

While May is the month of payment of the Participation for 2020 for a majority of the companies concerned, the HROs and CFOs who want to give meaning to this plan can opt for a more educational communication to explain its calculation to employees and how to make the most of it.

Illustration below using two examples.

Define the calculation basis of PSP (profit sharing plan)
Determine what part of the calculation basis goes to employees
The paradox of the S / VA (Wages / Added Value) productivity ratio of the legal calculation formula

The solution to the PSP paradox

How could HEAVY employees obtain the same PSP (Participation) as those of LIGHT (270 k €)?

The safest solution is to increase the productivity of HEAVY: by targeting a S / VA ratio of 33% against 40% currently, i.e. an Added Value of € 9m for € 3m in wages, the tax benefit would increase by 1m. € to reach € 2m (*)

The calculation basis B – 5% C in this case reaches 1.5 m € while the part due to employees in respect of the profit-sharing (S / 2VA) will be 16.67% against 20% currently

The HEAVY RSP will thus be € 250k (= € 1.5m x 16.67%), i.e. 150% more than currently

(*) with a profit tax rate of 31%, all other things being equal

The best way to increase individual employee PSP bonuses

Our tips for getting the most out of your Profit Sharing Plan:

1 / Have the PSP calculation checked by an expert in compensation

2 / Take into account the social tax (standard rate of 20%) to reduce the taxable profit

3 / Benchmark your productivity ratio

4 / Involve employees in improving added value

5 / Improve the financial efficiency of your staff costs

(Financial efficiency rate = net amount payed after income tax / overall remuneration cost)

6 / Assign Participation a defined role in your HR policy

7 / Study the different options for the calculation and distribution of the PSP

To find out more, follow our next articles on

Employee savings bonuses in 2018 (FR)

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