The relationship between profit-sharing/gain-sharing plans, productivity and economic value added.

ABSTRACT

The influence of profitsharing/gainsharing plans on the performance of value drivers employed by EVA[R] 's methodology was the theme of this study. The financial drivers evaluated in this survey were: growth in sales, investment in working capital, investment in fixed capital, operating profit margins, income tax rate, cost of equity and cost of debt. And the non-financial drivers considered were: productivity, customer satisfaction, quality of the product or service, training of employee, satisfaction of employee, product innovation, process innovation, market share and safety of employee. This is a descriptive survey studied in a quantitative fashion. The data were collected through questionnaire and the statistical software SPSS was used for tabulation. The companies of the sample were of medium and large size, from the industrial sector, of different branches of activity, located in the State of Sao Paulo. The results suggest that the profitsharing and gainsharing programs have a favorable influence on the performance of value drivers. The favorable influence on the non-financial drivers was greater than on financial drivers. Productivity was the driver subject to the greatest favorable of all the drivers evaluated in this study.

1. INTRODUCTION

The influence of profitsharing/gainsharing plans on the performance of value drivers employed by EVA[R] 's methodology was the theme of this study. The financial drivers evaluated were: growth of sales, investment in working capital, investment in fixed capital, operating profit margin, income tax rate, cost of equity and cost of debt. And the non-financial drivers considered were: productivity, customer satisfaction, quality of the product or service, training of employee, satisfaction of employee, product innovation, process innovation, market share and safety of employee.

To some drivers a favorable influence signifies an improvement of the driver, such as the case of productivity. To others, it signifies a decrease in the driver, like in the case of cost of capital. The results suggest that profitsharing/gainsharing plans have a favorable influence on the performance of value drivers. Productivity was the driver subject to the greatest favorable of all the drivers evaluated in this study. This study can be a valuable instrument for the companies, when demonstrating that the deployment of sharing plans can bring benefits so much for the companies as for the employees.

2. THEORETICAL REFERENTIAL

2.1 Remuneration

According to Young & O'Byrne (2001, p. 114-115), a remuneration policy has four fundamental objectives:

1. Alignment: motivate employees to choose strategies and investments that maximize shareholder value,

2. Wealth leverage: stimulate employees to make unpleasant decisions, to take risks and to work long hours,

3. Retention: give employees sufficient total compensation to retain them, particularly during periods of poor performance caused by market or industry factors,

4. Shareholder cost: limit the cost of compensation to levels that will maximize the wealth of shareholders.

The remuneration system should be aligned to the strategy of the company (YOUNG & O'BYRNE, 2001). The two types of strategy more used are strategy of cost leadership and differentiation strategy.

For Martocchio (1998), the companies can reach their objectives the pursuit of low costs and/or differentiation through the implantation of participation plans.

The companies' leaders in costs use financial measures for evaluate and remunerate their employees, while the companies with differentiation strategy use non-financial measures (YOUNG & O'BYRNE, 2001; ITTNER et al., 1997).

2.2 Variable remuneration

The objective of variable remuneration is to improve business performance (BELCHER, 1996) and to make the company more competitive (MARTINS & BARBOSA, 2001), conditioning part of the employees' payment to the attainment of goals and objectives (XAVIER et al., 1999).

The variable remuneration program must take strategies, structure, values, processes and people into account. The program must be flexible and sufficiently mobile to adjust to the dynamic circumstances of the environment (XAVIER et al., 1999). Many companies adopt plans that have been successfully deployed at other companies, without taking the particular strategies and characteristics of each company into consideration. Indicators that are valid for one company might not prove valid for another.

Profit-sharing and gain-sharing plans are variable remuneration alternatives more used by Brazilian companies.

2.3 Profitsharing

In profitsharing plans, the sums paid by companies to their employees are taken from the company's income. These plans can be based on a measure of return or of income.

The profit sharing plans are an incentive form for the workers to act in agreement with the best interests of the company, instead of looking for the satisfaction of their own interests. These plans allow the companies to align their labor costs with their ability of paying wages. Like this, in recession periods in the businesses, the fixed costs of labor can be smaller (HATTIANGADI, 1998).

Besides, the profit sharing plans give flexibility to the companies, allowing, in the good years, payments of wages above the practiced in the market, without having to cut personal in the difficult years (FLANNERY et al., 1997).

The problem with this type of plan is that the profits are influenced and affected by many variables, which are beyond the control of the employee (HATTIANGADI, 1998; BECKER & RUAS, 1997) such as the governmental policy, the economic situation of the country, competition, managerial style and investment policy. The plan could fail to act as an incentive if workers improve their performance but the company's profits drop (HATTIANGADI, 1998).

The main advantages of the profitsharing program are (ROSA, 2000):

1. The program motivates the union of efforts alleviating the pressures on departments or units, because the goal is for the whole company,

2. The program increases the demand on the part of employees for improvements on the systems of the company,

3. The program improves the quality and reduces costs,

4. If loss occurs there is no profitsharing payment.

On the other hand, the main disadvantages of the profitsharing programs are (ROSA, 2000):

1. The analysis of financial statements, of which the profit is extracted, is complex, demanding training and specific knowledge from employees, and this difficulty of comprehension can lead to lack of credibility;

2. The program requires the company to expose data that entrepreneurs are not always willing to reveal, since they consider it confidential,

3. Employees might feel discouraged if they believe that the payments were insufficient or that the result presented by the company is incorrect,

4. The statements are drawn up in accordance with the accrual basis, and the positive result might not be real on the cash basis. Like this, the payment of the participations can affect the liquidity of the company.

2.4 Gainsharing

Gainsharing plans link part of the employees' remuneration to the achievement of organizational or team performance improvements (BERGER & BERGER, 1999; GOMEZ-MEJIA et al., 2000). They are based on increases on historical performance (GOMEZ-MEJIA et al., 2000); involve a performance measure and the calculation of a bonus (BELCHER, 1996)

The three gainsharing plans used most frequently by companies are: Scanlon, Rucker and Improshare. The main advantages of gainsharing programs are (ROSA, 2000):

1. They allow companies to attain specific objectives,

2. Increase credibility as goals are within the reach of employees and results are measured on known indicators,

3. Stimulate teamwork,

4. Reduce resistance to the deployment of the program,

5. Increase the demand from employees for improvement systems,

6. Reduce costs,

7. Favor the knowledge of the performance of units or branches,

8. Emphasize quality improvement, motivating the search for innovations of products and processes,

9. Require less exposure of data by the company.

The main disadvantage of profitsharing program is that if the chosen goals are attained, there is payment of a wage variable, even if the company records loss in the year (ROSA, 2000).

2.5 Profitsharing and gainsharing in Brazil

Profitsharing in Brazil first appeared in the Federal Constitution of 1946. The constitutional texts of 1946 to 1969 refer to the sharing of workers in companies' profits, but the law was not regulated.

The regulation took place through Provisional Measure 794 of 12/29/1994. After the successive publication of various Provisional Measures, the government ratified the text by Law 10101 of 12/19/2000. This Law provides that (BOLETIM IOB, 2001; PARRAS, 2002):

1. Profitsharing and gainsharing will be subject to negotiation between the company and a committee formed of employees and a union representative,

2. The criteria can be indexes of productivity, quality or profitability,

3. The rules should be clear and objective,

4. The agreement should be filed at the union entity of the workers,

5. The program does not constitute a basis for the incidence of any labor charge,

6. The participation received by employees will be taxed at source, and the company will be responsible for their withholding and payment,

7. Companies can deduct distributed participation as operating expenses,

8. The payment periodicity cannot be less than semi-annual.

Brazilian legislation makes no distinction between profitsharing and gainsharing. The definition depends on the company's objectives in adopting the program, lf it was understood as a legal imposition, or an instrument capable of reducing union pressures, the tendency will be for the deployment of a profit-based model (GONCALVES, 1996).

If the objective is to intensify the motivation of workers, the choice will be for a gainsharing plan. In this case, the company chooses one or more indicators best suited to its strategic objectives (GONCALVES, 1996).

2.6 Creation of value

The VBM or Value Based Management system constitutes a management system designed to create value for shareholders. A company creates value when the obtained returns are higher than the cost of capital used to produce these returns (WAHBA, 2002)

It is important for the success of the VBM, to evaluate and remunerate employees with base in the value created for shareholders (ALCANTARA, 1997). According to Peterson & Peterson (1996), a company should consider the following factors when choosing a performance measure:

1. The chosen measure should not be influenced by accounting methods,

2. The measures should take into consideration results expected in the future,

3. The measures should take into consideration the risks,

4. The measures should contemplate factors that are not under the control of employees.

2.6.1 Traditional performance measures. Traditional performance measures are based on accounting data. Their advantages include the fact that information is available in financial reports and they can be easily calculated and construed (PETERSON & PETERSON, 1996).

The main traditional performance measures are (FRIEDLOB et al., 1996; KASSAI et al., 2000): ROI (return on investments), ROA (return on assets), ROE (return on equity), RONA (return on net assets), EPS (earnings per share) and PIE (price/earnings ratio).

Martin & Petty (2000) point the following problems with these metrics:

1. The accounting profits and the cash flow are not equal, and it is the cash flow that is important for the creation of value for shareholders,

2. Accounting figures do not reflect the risk of operations, neither do they consider the cost of opportunity of equity and the value of money over time,

3. Accounting practices vary from one company to the next.

The companies are discovering that the traditional measures are not aligned with their cultures and their strategies. The search for better methods of evaluation is conducting companies to the adoption of measures of added value, that besides supplying a more consistent evaluation, align the objectives of the shareholders and of the executives (FLANNERY et al., 1997).

2.6.2 Value added measures. The two most widely known value added measures are Market Value Added (MVA[R]) and Economic Value Added (EVA[R]).

For value added measures, the company management is creating value when the returns obtained exceed all the costs, including the cost of equity (PETERSON & PETERSON, 1996).

Market Value Added (MVA[R]) is the difference between the market value of a company and the invested capital. MVA[R] reflects the present value of future EVA[R]s, discounted at the capital cost.

Economic Value Added (EVA[R]) is the operating profit less the cost of all the capital used to produce these profits (STEWART, 1999; YOUNG & O'BYRNE, 2001). It can be affected positively by an increase in operating profit without the need for an increase in the capital employed, and by the use of new capital in projects that yield higher rates than the total cost of capital. It can be negatively affected if the managers accept projects that yield less that the total cost of capital; and if the managers fail to accept project that yield more than the capital cost.

Ehrbar (1999) presents the following formula for EVA[R] calculation:

EVA[R] = NOPAT - C.(TC)

Where: NOPAT is the net operating profit after income tax; C is the capital percentage cost, and TC the total capital.

Since the total capital cost used for the EVA[R] calculation corresponds to WACC (Weighted Average Cost of Capital), the EVA[R] formula can be rewritten as follows:

EVA[R] = NOPAT - WACC.(TC)

Considering the standards employed in Brazilian literature, EVA[R] can be represented through the following formula:

EVA[R] = LO.(1-t) - WACC.(1-t).(AOL)

Where: LO is the operating profit; t the income tax rate; WACC the weighted average cost of gross capital and AOL the net operating assets (the difference between total capital invested and operating liabilities).

Productivity has always been considered a non-financial value creation driver. However, financiers have always encountered difficulties in establishing a clear connection between productivity and value creation (RAY, 2001).

According to Rappaport (2001), productivity is the basis for the creation of competitive advantage. A company creates competitive advantage when the value of its sales on the long term is higher than the total cost. When the market evaluates a company, it takes its long-term productivity generating capacity into account. Thus competitive advantage and the creation of value for shareholders are supported by productivity.

Basso (2002) introduced productivity in the EVA[R] formula. Emphasizing a forgotten characteristic of EVA[R], its relation with the statement of added value and productivity (DE LUCCA, 1998; GRAY & MAUDERS, 1986; GRAY & MEEK, 1988), the author rewrote the most well known EVA[R] formula.

Value Added (VA) is the difference between the gross production value (VBP), and the intermediate consumption (CI) (DORNBUSCH & FISCHER, 1994; SIMONSEN & CYSNE, 1998):

VA = VBP - CI

This sum is initially appropriated for the employees (CT - labor costs) and what remains is the gross operating income.

LO = VA - CT

The second appropriation is executed by the Government, which demands a portion of the gross operating income, represented by the tax rate:

LO (1-t) = (VA - CT).(1 -t)

By substituting the operating profit in the EVA[R] definition we obtain:

EVA[R] = (VBP - CI - CT).(1-t) - WACC. (1-t).(AOL)

By substituting the gross production value by its definition, we obtain:

EVA[R] = (P x Q - CI - CT) - t.VA + t.CT - WACC.(1-t).(AOL)

The productivity of the work can be defined as the quotient between the produced amount (Q) and the worked hours (HT). By multiplying and dividing the quantities produced by the sum of hours of work needed to produce them, we obtain:

EVA[R] = P x (Q/HT).HT - CI - CT- t.VA - t.CT - WACC.(1-t).(AOL)

EVA[R] = P x PROD x HT - CI - CT.(1-t) - t.VA - WACC.(1-t).(AOL)

By dividing the expression by the net operating assets (AOL), i.e., the assets used to produce the economic value added, we obtain:

(EVA[R]/AOL) = P x PROD x (HT/AOL) - (CI/AOL) - [CT.(1-t)/AOL]- (t.VA/AOL) - WACC.(1-t)

Where: PROD is the productivity of the work; HT/AOL the efficiency of the net operating assets; CI/AOL the participation of the intermediate consumption in the net operating assets; CT.(1-t)/AOL the participation of the work in the net operating assets; t.VA/AOL the participation of taxation on value added in the net operating assets; and WACC = [CCT.(1-t) + CCP.(1-t)]/AOL

EVA[R] can be redrafted through the following formula:

EVA[R] = [P x PROD x Efficiency of AOL - Share of Intermediate Consumption in Net Operating Assets - Share of Work in the Net Operating Assets - Share of Taxation on Value Added in the Net Operating Assets - Net Weighted Average Cost of Capital] x AOL

This equation shows all the variables that increase the economic profit, that is: price increase; productivity increase; increase of the efficiency of net operating assets; reduction in the share of intermediate consumption in net operating assets; reduction of the payroll as a proportion of net operating assets; reduction of the tax burden on the value added as a proportion of net operating assets; reduction of the weighted average cost of capital.

The formula makes the relation between the increase in productivity and the increase in economic value added explicit, providing all the other factors remain constant.

2.7 Value Drivers

Value drivers are proactive measures on which companies can act to anticipate results, with the objective of creating value for shareholders (RAPPAPORT, 2001; BLACK et al., 2001; YOUNG & O'BYRNE, 2001).

There are two types of drivers: financial and non-financial. Financial drivers consist of historical data that appraises performance after the event has occurred. For this reason, they are considered lagging indicators (YOUNG & O'BYRNE, 2001).

Black et al. (2001) identified seven financial drivers: growth of sales, investment in working capital, investment in fixed capital, operating profit margin, income tax rate, cost of capital and period of competitive advantage. Companies need indicators with the capacity to forecast the creation of value, which indicate the value that is being created or destroyed before the events occur. These indicators, known as leading indicators, are non-financial.

According to Ittner et al. (1997), the exclusive use of financial measures to appraise performance is not sufficient to motivate managers to act in accordance with the interest of the owners. Young & O'Byrne (2001) with a basis on the work by Ittner et al. (1997), present the following non-financial indicators: customer satisfaction, quality of the product or service, safety of employee, productivity, market share, satisfaction of employee, training of employee and innovation.

The disadvantage of non-financial indicators is that they are difficult to measure and vary from industry to industry. With the objective of maximizing the creation of value on the long term, companies need to use financial and non-financial indicators, and the choice of indicators must be related to the company's strategy.

3. METHODOLOGY OF THE SURVEY

According to Kerlinger (1980, p.321), research "is targeted at the resolution of practical issues specified in delineated areas and from which improvement or progress of some process or activity or the attainment of practical goals is expected."

The descriptive survey was chosen and the objective was to describe a fact or phenomenon (SANTOS, 2000) and study "the relations between two or more variables of a given phenomenon without manipulating them" (KOCHE, 2000, p.124).

The electronic tabulation of the data was used through the statistical software SPSS--Statistical Package for the Social Sciences--version 10.0 for Windows.

The descriptive statistic was chosen to organize, summarize and present the statistical data (STEVENSON, 1981). The main used tool was the frequency distribution.

The inference statistics was used with the objective to know better the population of which the sample was extracted (NEUFELD, 2003).

Chi-Square analysis, "a non parametric test that makes comparisons between two or more samples on the observed frequency of values with expected frequency of values", was used (GEORGE, 2003, p.370).

We selected 1,008 companies from a database of Federacao das Ind0strias do Estado de Sao Paulo (FIESP) with 2,124 companies of all sizes and branches of activity, located in the State of S&o Paulo.

The data collection was accomplished by August 2002 until February 2003. Of the total returned questionnaires, 91 (9%) were usable, because they presented all the questions answered.

4. DATA ANALYSIS

The objective of this study was to verify the influence of profitsharing/gainsharing plans on value drivers' performance. All the 91 companies from the sample group were from the industrial sector. Using the concept of size of a company of Servigo de Apoio as Micro e Pequenas Empresas (SEBRAE), with a basis on the number of employees, 53.8% of the companies were of medium size, 44% large and only 2.2% of small size.

The companies were located in the State of Sao Paulo, and 41.8% in the city of Sao Paulo. Diadema was the second municipal district with larger number of participant companies--11%.

As regards the job position of the respondents, 35.2% occupied the position of director, 31.9% of manager, 14.3% of CEO, 7.7% of head/supervisor, 3.3% vice-president, and 7.6% occupied other positions. The length of service of the respondents varied from 1 to 53 years, whereas most of them, i.e., 30.7% were in the 1 to 5 years bracket.

The companies were of several areas of performance. The chemical represented 13.2% of the answered questionnaires, following by the pharmaceutical and vehicles with 9.9% each.

The research questionnaire was divided in four blocks. The objective of block I was to verify the influence of the deployment of profitsharing/gainsharing plans on the value drivers. Block II had the objective to verify the characteristics of the participation plans and the respondents' perception as to the creation of value and cost of capital. The block III had the objective to verify the measures used by the companies to establish goals for participation payment. The objective of the block IV was to verify the measures more used by the companies to evaluate performance: traditional measures and value added measures.

Block I contained a list with 16 drivers and the respondents indicated the impact of the deployment of the profitsharing/gainsharing plan on each one of the listed drivers, in accordance with the Likert scale of 5 points: 1--increased (improved) significantly; 2--increased (improved) moderately; 3--had no influence; 4--decreased (worsened) moderately; 5--decreased (worsened) expressively.

The financial drivers listed were: growth of sales, investment in working capital, investment in fixed capital, operating profit margin, income tax rate, cost of equity and cost of debt.

For some drivers the influence can be considered positive if there was an increase such as in the case of growth of sales. For others, such as cost of capital, the influence is positive if there was a decrease.

The table 1 display the influence in the drivers with the deployment of the participation plans. The column Increased (improved) presents the sum of the answers increased (improved) significantly and increased (improved) moderately; and the column Decreased (worse) presents the sum of the answers decreased (worse) moderately and decreased (worsened) expressively. The last column presents the median of the answers.

For 44% of the respondents, the driver growth of sales increased with the deployment of the participation plan. However, for 50.5% the driver didn't suffer significant influence.

The investment in working capital didn't have influence for 70.3% and it increased for 24.2% of the respondents. The investment in fixed capital didn't have influence in 79.1% and it increased in 17.6% of the participant companies of the research.

The operating profit margin increased for 50.5%, didn't have influence for 34.1% and decreased to 15.4% of the companies. The income tax rate, the cost of equity and cost of debt didn't have influence for 85.7%, 83.5% and 79.1% of the companies, respectively.

The median of the financial drivers was 3, except for to operating profit margin that it was 2. Therefore, this driver had an increase (improvement) moderate with the deployment of the participation plans, and the other drivers didn't suffer significant influence.

The non-financial drivers were: productivity, customer satisfaction, quality of the product or service, training of employee, satisfaction of employee, product innovation, process innovation, market share, safety of employee.

For 83.5% of the respondents, the productivity increased with the deployment of the participation plan. The customer satisfaction improved for 62.6% and didn't have influence for 31.9%. The quality of the product or service improved for 70.3% of the respondents and didn't have influence for 25.3%.

The training of employee had an improvement for 58.2% and it didn't suffer significant influence for 38.5% of the companies.

For 82.4% the satisfaction of employee increased with the deployment of the plans. The product innovation didn't have influence for 64.8% and had an increase for 35.2% of the respondents.

The process innovation had an increase for 57.1% and it didn't suffer influence for 38.5%. The market share didn't suffer influence for 59.3% of the companies and it increased for 36.3%.

Satisfaction of employee increased for 57.1% and it didn't suffer influence for 41.8% of the respondents.

Product innovation and market share had median 3, what means that those drivers didn't suffer influence with the deployment of the participation plans. The median of the other non-financial drivers was 2, what indicates that they suffered an increase moderate with the deployment of the plans.

The productivity was the driver that suffered the largest favorable influence with the deployment of the participation plans. The other drivers more favorably influenced were: satisfaction of employee, quality of the product or service and customer's satisfaction.

The statistical test Chi-Square was used to identify whether observed values differ significantly from expected values, so that the null hypothesis could be rejected.

The results point that the null hypothesis can be rejected at the level of 1%. Therefore, the deployment of the profitsharing and gainsharing plans had a favorable influence on the value drivers. The non-financial drivers were more favorably influenced that the financial drivers.

19 assertions were presented in block II and the respondent indicated the degree of their agreement or disagreement, according to the Likert scale of 5 points: 1--I fully agree; 2--I agree to some extent; 3--Indifferent;--I disagree to some extent; 5--I disagree a lot. The objectives were to verify the characteristics of the plans used by the companies (1 to 9) and to verify the respondents' perception as for the creation of value and at the capital cost (10 to 19).

The table 2 displays the agreement and disagreement of the respondents.

The assertion 1--"the company adopts a system of variable remuneration"--had the agreement of 65.9% of the respondents and the disagreement of 24.2%. The median was 2, what indicates little agreement with the assertion.

87.9% of the respondents agreed with the assertion 2--"the company has a profitsharing or a gainsharing plan". The median was 1, a high agreement degree.

The vast majority, or 81.3% of the respondents, agreed with the assertion 3--"the participation plan attains all the hierarchical levels". The median of the answers was 1.

The assertion 4--"the company deployed the profitsharing or the gainsharing plan by legal imposition"--obtained the agreement of 51.6% and the disagreement of 37.4%. The median was 2.

70.3% of the respondents agreed with the assertion 5--"the company deployed the participation plan to increase productivity". 20.9% disagreed of the assertion. The median was 2.

The assertion 6--"the participation plan is based only on profits and conditioned to goals"--had the agreement of 31.9% and the disagreement of 59.3% of the respondents. The median was 5, which demonstrates a high degree of disagreement.

57.1% of the respondents agreed with the assertion 7--"the participation plan is based only on results and conditioned to goals", and 29.7% disagreed. The median was 2.

The assertion 8--"the participation plan is based on profits and results and conditioned to goals" obtained the agreement of 58.2% of the respondents and the disagreement of 30.8%. The median was 2,5, i.e., between I agree to some extent and indifferent.

"The company pays a fixed value as participation plan" was the assertion 9, which had the agreement of 41.7% and the disagreement of 50.6% of the respondents. The median was 4, i.e., the respondents disagreed little of the assertion.

With a basis on this data, we can infer that more than half of the companies that participated in the survey adopt a system of variable remuneration, and most of those companies have a profitsharing or a gainsharing plan. This plan attains all the hierarchical levels at the vast majority of companies. Slightly more than half of the sample group deployed the plan, as it is mandatory by law. Most of the companies deployed the plan with the objective of boosting productivity. Practically the same percentage of the companies deployed a plan based on results and conditioned to goals, and a plan based on profits and results and conditioned to goals. An expressive percentage of companies pay a fixed value as participation.

50.5% of the respondents agreed with the assertion 10--"the company considers its more important concern to generate profit to the shareholder". 38.5% disagreed. The median was 2.

The assertion 11--"the shareholder is entitled of collecting a higher return of his/her company on the invested capital in the company, to the return that would have if his/her applied in other investments" had the agreement of 72.7% and the disagreement of 19.8% of the respondents. The median was 2.

"The company that presents profit in the financial statement is creating value to their shareholders"--assertion 12--had the agreement of 63.7% of the respondents and the disagreement of 28.6%. The median was 2.

74.7% of the respondents agreed with the assertion 13--"the use of financial measures aligns the interests of managers and shareholders, making them to think and to act as such", and 16.5% disagreed. The median was 2.

The answers to the assertions 10, 12 and 13 demonstrate that the concept of creation of value is not very diffused among the respondents. The most important concern of the company is to create value and not generate profit. The generation of accounting profit is not warranty of creation of value for the shareholder. The financial statement presents accounting profit that doesn't consider the cost of equity. The economical profit is the best measure of creation of value. According to the theory, the value added measures align the managers' interests and shareholders better than the financial measures.

The assertion 14--"the company doesn't calculate the cost of capital" had the disagreement of 67% and the agreement of 23.1%. The median was 4, i.e., the respondents disagreed a little. 67% of the respondents disagreed of the assertion 15--"the company doesn't consider the equity cost", 19.8% agreed and 13.2% were indifferent. The median was 4.

The assertion 16--"the equity cost is greater than debt cost" had the disagreement of 46,2% of the respondents and the agreement of 38,4%. The median was 3.

The assertion 17--"the calculation of the cost of capital is very complex" had the disagreement of 47.3%, the agreement of 27.4% and 25.3% was indifferent. The median was 3.

45% of the respondents disagreed of the assertion 18--"the company uses index as income saving and CDI, as equity cost". 28.6% agreed and 26.4% were indifferent. The median was 3.

The assertion 19--"the company establishes the equity cost in a subject way" had the disagreement of 52.7%, the agreement of 26.4% and the indifference of 20.9% of the respondents. The median was 4.

The answers to the assertions of number 14 to 19 indicate that there wasn't a consensus among the respondents as for the cost of equity and the cost of debt, as for the complexity of the calculation of the cost of capital and as for the way as the companies calculate this capital cost.

The statistical test Chi-Square was used to identify whether observed values differ significantly from expected value, so that the null hypothesis could be rejected. The results point that the null hypothesis can be rejected, at the level of 5% for all the assertions, except for the one of number 10--"the company considers its more important concern to generate profit to the shareholder".

Block III presented a list with 46 measures, draw up in a survey conducted by Basso & Krauter (2003). The ten measures more used by the companies to establish goals for participation payment are shown in table 3. Of these ten measures, nine are non-financial measure. The productivity is the more used measure. Five companies (5.5%) didn't establish goals. They pay the value stipulated in the collective convention of the category.

The block IV had the objective to verify the measures used by the companies to evaluate performance. Eight measures were presented--six traditional accounting measures and two value added measures. The table 4 displays the measures more used by the companies to evaluate performance.

The traditional accounting measures are the more used by the companies. The measure more used is ROI (return on investments). It was mentioned by 56% of the respondents. This measure is affected for the accounting practice and it is a measure of a single period.

The other measure more used is ROE. It presents the same deficiencies of ROI, besides being sensitive the percentage of equity/debt capital.

The statistical test Chi-Square was used. The results appoint that the null hypothesis can be rejected, at the level of 1% for the measures ROI and ROE.

5. CONCLUSIONS

The objective of this study was to verify the influence of profitsharing/gainsharing plans on value drivers' performance. The analysis of the data allowed the identification of a favorable influence on financial and non-financial drivers on performance. The non-financial drivers were more favorably influenced than the financial drivers.

Productivity was the driver that experienced the most favorable influence of all the drivers evaluated in this study. It was also the measured used most by the companies to establish goals for payment of profitsharing/gainsharing. Productivity is an important value driver and is closely related to the measure of economic value added-EVA[R] (BASSO, 2002; BASSO & KRAUTER, 2003).

The other drivers more favorably influenced were: satisfaction of employee, quality of the product or service and satisfaction of customer. This study verifies the characteristics of the participation plans used by the companies. The data indicated that, in the general, the plans present the characteristics recommended by the theory. Most of the plans established goals that be reached for participation payment, what represents a progress in relation to the first plans, that didn't establish goals and paid a fixed value as participation.

These goals were linked to measure of operational performance, in the case of the companies with plans based on results, and to measured operational performance and profitability, in the case of the companies with plans based on profits and results. The theory recommends that the plans should not only be based on profitability measures, because profit is affected by many variables that are not under the employees' control.

The results of the research suggest that the concept of creation of value is not very diffused among the participants that privilege the accounting profit. The supplied answers didn't allow to verify if the companies are calculating the capital cost or are using some indicator of the market as capital cost.

The non-financial measures were more used by the companies to establish goals, what is in agreement with the theory that says that the companies should use non-financial measures to align the interests of employees and shareholders.

The ten measures more used by the participant companies of the research to establish goals were: productivity; waste, refuse, loss; absenteeism; produced units; quality programs; occupational accident; efficiency in the use of raw material; worked hours; rework and gross or net revenue.

The results of the research indicate that the traditional accounting measures were the more used by the companies to evaluate performance. ROI and ROE were the measures more used. To reach the objective of maximizing the shareholders' wealth, the companies should use the value added measures that are the most appropriate to measure the creation of value, because consider an opportunity cost for equity capital.

The present study can be a valuable instrument for the companies, by demonstrating that the implantation of the participation plans can bring benefits for the companies as for the employees.

TABLE 1: INFLUENCE IN THE DRIVERS WITH THE DEPLOYMENT OF THE
PARTICIPATION PLANS

Drivers                              Increased       Had no
                                     (improved)    Influence

                                     N      %      N      %

Growth of sales                      40    44.0    46    50.5
Investment in working capital        22    24.2    64    70.3
Investment in fixed capital          16    17.6    72    79.1
Operating profit margin              46    50.5    31    34.1
Income tax rate                       3     3.3    78    85.7
Cost of equity                       11    12.1    76    83.5
Cost of debt                          8     8.8    72    79.1
Productivity                         76    83.5     9     9.9
Customer satisfaction                57    62.6    29    31.9
Quality of the product or service    64    70.3    23    25.3
Training of employee                 53    58.2    35    38.5
Satisfaction of employee             75    82.4    12    13.2
Product innovation                   32    35.2    59    64.8
Process innovation                   52    57.1    35    38.5
Market share                         33    36.3    54    59.3
Safety of employee                   52    57.1    38    41.8

Drivers                              Decreased
                                      (worse)      Median

                                      N      %

Growth of sales                       5     5.5       3
Investment in working capital         5     5.5       3
Investment in fixed capital           3     3.3       3
Operating profit margin              14    15.4       2
Income tax rate                      10    11.0       3
Cost of equity                        4     4.4       3
Cost of debt                         11    12.1       3
Productivity                          6     6.6       2
Customer satisfaction                 5     5.5       2
Quality of the product or service     4     4.4       2
Training of employee                  3     3.3       2
Satisfaction of employee              4     4.4       2
Product innovation                    0     0.0       3
Process innovation                    4     4.4       2
Market share                          4     4.4       3
Safety of employee                    1     1.1       2

Source: draw up by the authors with a basis on the survey data

TABLE 2: AGREEMENT AND DISAGREEMENT

Assertions                                              Agreement

                                                        N      %

1. The company adopts a system of variable
remuneration.                                           60   65.9
2. The company has a profitsharing or a
gainsharing plan.                                       80   87.9
3. The participation plan attains all the
hierarchical levels.                                    74   81.3
4. The company deployed the profitsharing
or the gainsharing plan by legal imposition.            47   51.6
5. The company deployed the participation
plan to increase productivity.                          64   70.3
6. The participation plan is based only on
profits and conditioned to goals.                       29   31.9
7. The participation plan is based only on
results and conditioned to goals.                       52   57.1
8. The participation plan is based on
profits and results and conditioned to goals.           53   58.2
9. The company pays a fixed value as
participation plan.                                     38   41.7
10. The company considers its more important
concern to generate profit to the shareholder.          46   50.5
11. The shareholder is entitled of collecting a
higher return of his/her company on the invested
capital in the company, to the return that would
have if his/her applied in other investments.           66   72.7
12. The company that presents profit in the
financial statement is creating value to their
shareholders.                                           58   63.7
13. The use of financial measures aligns the
interests of managers and shareholders, making
them to think and to act as such.                       68   74.7
14. The company doesn't calculate the cost of
capital.                                                21   23.1
15. The company doesn't consider the equity cost.       18   19.8
16. The equity cost is greater than debt cost.          35   38.4
17. The calculation of the cost of capital is very
complex.                                                25   27.4
18. The company uses index as income saving
and CDI, as equity cost.                                26   28.6
19. The company establishes the equity cost in a
subject way.                                            24   26.4

Assertions                                             Indifferent

                                                         N      %

1. The company adopts a system of variable
remuneration.                                            9    9.9
2. The company has a profitsharing or a
gainsharing plan.                                        4    4.4
3. The participation plan attains all the
hierarchical levels.                                     5    5.5
4. The company deployed the profitsharing
or the gainsharing plan by legal imposition.            10   11.0
5. The company deployed the participation
plan to increase productivity.                           8    8.8
6. The participation plan is based only on
profits and conditioned to goals.                        8    8.8
7. The participation plan is based only on
results and conditioned to goals.                       12   13.2
8. The participation plan is based on
profits and results and conditioned to goals.           10   11.0
9. The company pays a fixed value as
participation plan.                                      7    7.7
10. The company considers its more important
concern to generate profit to the shareholder.          10   11.0
11. The shareholder is entitled of collecting a
higher return of his/her company on the invested
capital in the company, to the return that would
have if his/her applied in other investments.            7    7.7
12. The company that presents profit in the
financial statement is creating value to their
shareholders.                                            7    7.7
13. The use of financial measures aligns the
interests of managers and shareholders, making
them to think and to act as such.                        8    8.8
14. The company doesn't calculate the cost of
capital.                                                 9    9.9
15. The company doesn't consider the equity cost.       12   13.2
16. The equity cost is greater than debt cost.          14   15.4
17. The calculation of the cost of capital is very
complex.                                                23   25.3
18. The company uses index as income saving
and CDI, as equity cost.                                24   26.4
19. The company establishes the equity cost in a
subject way.                                            19   20.9

Assertions                                             Disagreement

                                                         N     %

1. The company adopts a system of variable
remuneration.                                           22   24.2
2. The company has a profitsharing or a
gainsharing plan.                                        7    7.7
3. The participation plan attains all the
hierarchical levels.                                    12   13.2
4. The company deployed the profitsharing
or the gainsharing plan by legal imposition.            34   37.4
5. The company deployed the participation
plan to increase productivity.                          19   20.9
6. The participation plan is based only on
profits and conditioned to goals.                       54   59.3
7. The participation plan is based only on
results and conditioned to goals.                       27   29.7
8. The participation plan is based on
profits and results and conditioned to goals.           28   30.8
9. The company pays a fixed value as
participation plan.                                     46   50.6
10. The company considers its more important
concern to generate profit to the shareholder.          35   38.5
11. The shareholder is entitled of collecting a
higher return of his/her company on the invested
capital in the company, to the return that would
have if his/her applied in other investments.           18   19.8
12. The company that presents profit in the
financial statement is creating value to their
shareholders.                                           26   28.6
13. The use of financial measures aligns the
interests of managers and shareholders, making
them to think and to act as such.                       15   16.5
14. The company doesn't calculate the cost of
capital.                                                61   67.0
15. The company doesn't consider the equity cost.       61   67.0
16. The equity cost is greater than debt cost.          42   46.2
17. The calculation of the cost of capital is very
complex.                                                43   47.3
18. The company uses index as income saving
and CDI, as equity cost.                                41   45.0
19. The company establishes the equity cost in a
subject way.                                            48   52.7

Assertions                                              Med

1. The company adopts a system of variable
remuneration.                                            2
2. The company has a profitsharing or a
gainsharing plan.                                        1
3. The participation plan attains all the
hierarchical levels.                                     1
4. The company deployed the profitsharing
or the gainsharing plan by legal imposition.             2
5. The company deployed the participation
plan to increase productivity.                           2
6. The participation plan is based only on
profits and conditioned to goals.                        5
7. The participation plan is based only on
results and conditioned to goals.                        2
8. The participation plan is based on
profits and results and conditioned to goals.           25
9. The company pays a fixed value as
participation plan.                                      4
10. The company considers its more important
concern to generate profit to the shareholder.           2
11. The shareholder is entitled of collecting a
higher return of his/her company on the invested
capital in the company, to the return that would
have if his/her applied in other investments.            2
12. The company that presents profit in the
financial statement is creating value to their
shareholders.                                            2
13. The use of financial measures aligns the
interests of managers and shareholders, making
them to think and to act as such.                        2
14. The company doesn't calculate the cost of
capital.                                                 4
15. The company doesn't consider the equity cost.        4
16. The equity cost is greater than debt cost.           3
17. The calculation of the cost of capital is very
complex.                                                 3
18. The company uses index as income saving
and CDI, as equity cost.                                 3
19. The company establishes the equity cost in a
subject way.                                             4

Legend: Med = median

Source: draw up by the authors with a basis on the survey data

TABLE 3: MEASURES MORE USED BY THE COMPANIES TO ESTABLISH GOALS

Measures                                  %

Productivity                             8.2
Waste, refuse, loss                      6.8
Absenteeism                              5.5
Units produced                           5.1
Quality programs                         4.6
Occupational accident                    4.4
Efficiency in the use of raw material    4.4
Hours worked                             4.3
Rework                                   4.2
Gross or net revenue                     3.6

Source: draw up by the authors with a basis on the survey data

TABLE 4: MEASURES MORE USED BY THE COMPANIES TO EVALUATE PERFORMANCE

          Measures             N     %

ROI--return on investments     51   56.0
ROE--return on equity          31   34.1
ROA--return on assets          26   28.6
P/E--price/earnings ratio      24   26.4
EPS--earnings per share        23   25.3
EVA--economic value added      21   23.1
RONA--return on net assets     14   15.4
MVA--market value added        12   13.2
Cash Flow                       7    7.7

Source: draw up by the authors with a basis on the survey data

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Professor Elizabeth Krauter earned her master degree in Business Administration at Universidade Presbiteriana Mackenzie in 2003. Currently she is a professor of Financial Management at Faculdade de Ciencias Economicas, Contabeis e Administrativas--Universidade Presbiteriana Mackenzie.

Dr. Leonardo Fernando Cruz Basso is Ph.D. in Economics for New School for Social Research. Currently he is a Professor of the Business Administration Post Graduation Program--Universidade Presbiteriana Mackenzie.

Dr. Herbert Kimura is Doctor of Business Administration for Universidade de Sao Paulo. Currently he is a Professor of the Business Administration Post Graduation Program--Universidade Presbiteriana Mackenzie.