- Profit sharing
Profit sharing, when used as a special term, refers to various
incentiveplans introduced by businesses that provide direct or indirect payments to employees that depend on company's profitability in addition to employees' regular salaryand bonuses. In publicly traded companiesthese plans typically amount to allocation of sharesto employees.
The profit sharing plans are based on predetermined
economicsharing rules that define the split of gains between the company as a principal and the employee as an agent.Moffatt, Mike. (2008) About.com" [http://economics.about.com/od/economicsglossary/g/sharingrule.htm Sharing Rule] " Economics Glossary; Terms Beginning with S. Accessed June 19, 2008.] For example, suppose the profits are x, which might be a random variable. Before knowing the profits, the principal and agent might agree on a sharing rule s(x). Here, the agent will receive s(x) and the principal will receive the residual gain x-s(x).
Management's share of profits
The share of profits paid to the management, or to the
Board of Directorsis sometimes called the tantième [ [http://www.ubs.com/1/e/about/bterms/content_m.html] UBS Dictionary of Banking: Letter M, "management's share of profits"] [ [http://www.eurofound.eu.int/emire/GERMANY/SHAREOFPROFITS-DE.html 'Share of profits'] ] . This French languageterm is generally applied in describing the business and finance practices of certain European countries -, including Germany, France, Belgium, and Sweden. It is usually paid in addition to the manager's (or director's) fixed salary and bonuses (bonuses usually depend on profits as well, and often bonuses and tantieme are treated as the same thing); laws vary from country to country.
United States, a profit sharing plan can be set up where all or some of the employee's profit sharing amount can be contributed to a retirement plan. These are often used in conjunction with 401(k) plans.
Gainsharing is a program that returns cost savings to the employees, usually as a lump-sum bonus. It is a productivity measure, as opposed to profit-sharing which is a profitability measure. There are three major types of gainsharing:
*Scanlon plan: This program dates back to the 1930s and relies on committees to create cost-sharing ideas
*Rucker plan: This plan also uses committees, but although the committee structure is simpler the cost-saving calculations are more complex.
*Improshare: Improshare stands for "Improved productivity through sharing" and is a more recent plan. With this plan, a standard is developed that identifies the expected number of hours to produce something, and any savings between this standard and actual production are shared between the company and the workers. [Citation
first =Luis R.
first2 =David B.
title =Managing Human Resources
Upper Saddle River, New Jersey
publisher =Pearson Prentice Hall
isbn =0-13-187067-x ]
Retirement plans in the United States
macroeconomics of profitsharing -www.profitsharinguprising.com
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