Question

Your business regularly makes a 5 percent profit, but for six months, your profit expands to 7 percent over expenses. Would you share your increase with employees, give them a one-time bonus, or put the money back into the company? Discuss what factors you used to make your decision.

Just interested in seeing what factors needs to be considered when making a decision like this, thank you

Answer 1

Ans:-

The profit of the company will either increase with the increase in revenue or with a decrease in expenses. We have to, first of all, determine that whether this increase or decrease is because of the efficiency of the employees or due to other factors. For example, interest rates, the price of raw material, price of the end products, depreciation of the assets are few factors over which the employees or the management have no apparent control. Yet they vary as per the general trend of the economy and industry and other uncontrollable factors inside the firm. If found, that the increase in profit is due to these factors, then giving a bonus or increasing the paycheck would not be a good idea because things will change again as per the cyclical nature of the economy and other factors and the profit will be back to the earlier figure.

Now consider the increase in profit is entirely due to the efforts put by the employees. Then also, two things may be observed. First, it could be due to a short-term deal made efficiently and smartly by a set of employees. The profit has increased due to that deal but that will not be long lasting in effect. In such a case, giving one-time bonus is more preferable. While in some other cases, it may be found that the improvement is due to the execution of a particular project which was ongoing and has now started giving benefits after implementation. Then it is fair enough to assume that the effects of this project will create profit in the long-term. This may call for a salary increase to the employees.

It is also relevant to consider what the competitors are doing in the market. As we can understand, the employer-employee relationship is none other than a buyer-seller relationship in a market space. If our benefits and compensations are not at par compared to the competition, our employees could leave the company and join the competitors. So, considering the external factors (competition, industry, economy) is crucial while deciding a salary hike. However, a one-time bonus may not call for such consideration and can always be persuaded if the employees have really worked well to bring the profitability up.