“Does Profit Sharing in the Netherlands depend on Sectoral Revenue Volatility?”

“The rapid growth of interest in profit sharing schemes is related to shifts in technology and work organization which favour cooperation and interaction rather than isolated and routine tasks.” (Fitzroy and Kraft 1987: 24) The extent to which different sectors in the Netherlands make use of profit sharing differs noticeably. The question that arises here is: what is the relationship between the sectoral revenue volatility and the extent to which different sectors make use of profit sharing. Based on two theories, the agency theory and the prospect theory, this study will try to give an answer to that question. Agency theory concludes that employers should not use profit sharing in their company because the agent has to bear too much risk, as a result there should be no relationship between profit sharing and the volatility of the revenues. The prospect theory predicts two different outcomes. For the naïve type of employee the relationship should be positive and for the sophisticated employee the relationship should be negative. Data analysis confirms the hypothesis of the prospect theory in case of the naïve employee.