Strategic Human Resource Management

Section Five

Profit Sharing

A study by Gary Florkowski and Kuldeep Shastri has examined
the impact of profit sharing on shareholder wealth in unionized
firms. This study examined shareholder returns after firms
negotiated profit-sharing plans with their unions. The results of
their study of 45 publicly traded firms indicated that
shareholder returns increased following the announcements of
such plans. Interestingly, the increases were the largest for
firms having financial difficulties preceding the negotiated
settlements. The results are meaningful because the
researchers also concluded that the increased returns were not
attributable to the conclusion of strikes or wage-reduction
programs.^14

The financial impact of profit sharing also has been
studied in the banking industry. John Delery and Harold Doty’s
multiple regression analysis of data from 192 banks controlled
for several potential influences on financial performance.
Results of the analysis revealed that profit sharing had a
positive impact on both return on assets (ROA) and return on
equity (ROE).^15

Another study provides further evidence on the impact of
profit sharing. This study examined the five-year survival rates
of 183 small nonfinancial firms that conducted initial public