ONE unpleasant nocturnal emission from the mind of President BS Aquino 3rd that we thought had been appropriately ignored more than two years ago has unfortunately reappeared in Congress, thanks to the senatorial aspirations of Buhay party-list Rep. Lito Atienza.
Back in May 2014, Atienza introduced House Bill 4445, otherwise known as the “Profit Sharing Act of 2014,” which would mandate that “All business establishments that made a profit for a fiscal year shall annually distribute 10 percent of their net income to all their employees, both regular and contractual.”
In a post to his Facebook page this past Tuesday, Atienza cheerfully announced that the bill “has been approved in principle by the House Committee on Labor and Employment,” implying that the measure has taken an important step toward passage.
In reality, the bill has not attracted much attention in several months and appears to be headed for the legislative dustbin, where it belongs; Atienza, whose political career seems to have been one long struggle for relevance, is evidently bringing it up now because he needs to find ways to at least try to reduce the futility of his upcoming Senate campaign.
The bill itself is no more than a rehash of the original version, HB 4972, which was introduced in February 2013 by Northern Samar Rep. Emil Ong, who at that time was the chair of the Labor and Employment committee.
The profit-sharing idea was one that was raised several times by BS Aquino himself during his presidential campaign, and which he claimed was an advocacy he had pursued since his days in Congress, although there is not a whiff of evidence in the legislative record to support that assertion. The only significant difference between HB 4445 and the earlier version is the increase in the mandated profit-sharing percentage from 5 percent to 10 percent. In addition, where the first bill passed off responsibility for developing the actual details of the law through the implementing rules and regulations to the Department of Labor and Employment and the Philippine Association on Voluntary Arbitration, Atienza’s version makes the even more dubious choice of substituting the Bureau of Internal Revenue for the PAVA.
As far as the concept is concerned, the simple, unassailable argument for dismissing the notion I explained when the mandatory profit sharing bill made its short-lived appearance in Congress the first time is still valid now. Profit sharing is actually a sound idea. It provides employees with a productivity incentive by giving them a personal stake in the company’s performance, and is consequently an option that should be strongly considered by businesses as both a performance management tool and a value-added benefit for attracting new employees. Giving companies an incentive to implement some form of profit sharing is also a sound idea, one that Atienza seems to have had at least a superficial grasp of, by proposing that shared profits be tax-deductible.
Mandating profit sharing, however, is a terrible idea. What the government would be imposing is a demand that businesses in at least one respect reward all employees equally regardless of the value of their contribution to the business—a Marxist sort of notion that tends to be counter-productive in a real-world economic environment. A more practical argument is that making what should be a performance incentive a mandatory part of compensation removes any effectiveness it has as a tool for encouraging productivity. The evidence for that argument is not particularly obvious now, but will become obvious with the employee grievances that will erupt the first time a business under the profit-sharing mandate declares it has no net profit for the fiscal year.
It is just as well that Atienza’s measure seems to have fizzled out in the same fashion as the earlier version, because it would likely accomplish nothing more than to discourage some new businesses from even starting, and encourage an increased amount of creative accounting among some existing businesses in order to avoid the cost of the mandate. Nevertheless, with a little time still left in the term of the Aquino regime, and with a profit-sharing law being a tempting populist measure to pursue for election campaign purposes, we should be alert to the possibility it may come up again.