What is Employee Profit Sharing

Every decision you make as a good and bad side. By carefully weighing these things, you can make the right decision. This is very much applicable to employee profit sharing.

Before you decide to implement this form of compensation program, you have to know a great deal if information about it.

Advantages of Employee Profit Sharing

A lot of employees are interested in profit sharing but before you take another step, do you know what profit sharing is all about? Profit sharing is basically a compensation program that is incentive-based. Part of the profits of the company is awarded to employees. The said amount is given annually and is usually based on the employee’s salary base. Top executives of the company will tend to receive higher amounts as compared to the regular employees; the higher the salary, the higher the amount. Companies that are earning steadily or those that gain relatively stable profits can implement this form of compensation program. All programs have advantages and disadvantages so in order for employers to make the right decision, they should weigh these things first.

The advantages of implementing profit sharing are as follows – the program encourages employees to work on a common objective or goal and that is to help the company attain success, helps all the personnel to focus on the company’s profitability, the amount given to employees can vary since it is greatly dependent on the annual revenues and lastly, organization goals are easily met since commitment is enhanced. These are the good things about implementing the program and if employers are generous enough to share their wealth, employees will become more motivated.

What is Employee Profit Sharing? – The Downsides

If the program has good sides, it also has its downsides. The amount paid to employees can move up and down so this can cause problems. Some employees may doubt that top management has favoritisms especially if the program is not well explained to all employees. Since the employees are now focusing on profitability, quality of the products or service can be sacrificed. There are times when the workforce will simply concentrate in producing or selling more so that they can also have higher revenues by the end of the year. This can significantly affect the company because if quality is not maintained, customers will no longer patronize the business. Smaller companies will find it hard to manage finances if decide to implement such program. Whenever profit sharing is implemented, the employer is required to recalculate the employees’ regular rates. This can put the employers at a disadvantage so they would rather not share the profits.

The decision as to whether or not the company or organization is going to implement profit sharing is more of a personal decision. The most successful companies are enjoying the benefits of profit sharing but if this is new to you, examine the good and bad sides closely.

1 Comment

  • Musharraf said on June 10, 2014
    Dear sir i am in construction business in Delhi India , like roads ,bridges ,building etc. My company 6 years small company having some projects in hand presently. Kindly suggest me the formula to improve the business. And also let me the idea on employ profit sharing. Kindly tell me in detail that how to adjust the salary & profit between seniors n juniors. Thanx n regards


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