Profit sharing

Profit sharing

Profit sharing, when used as a special term, refers to various incentive plans introduced by businesses that provide direct or indirect payments to employees that depend on company's profitability in addition to employees' regular salary and bonuses. In publicly traded companies these plans typically amount to allocation of shares to employees.

The profit sharing plans are based on predetermined economic sharing rules that define the split of gains between the company as a principal and the employee as an agent.Moffatt, Mike. (2008) " [ 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 Directors is sometimes called the tantième [ [] UBS Dictionary of Banking: Letter M, "management's share of profits"] [ [ 'Share of profits'] ] . This French language term 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.


In the 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
last =Gomez-Mejia
first =Luis R.
author-link =
last2 =Balkin
first2 =David B.
author2-link =
title =Managing Human Resources
place =Upper Saddle River, New Jersey
publisher =Pearson Prentice Hall
year =2007
volume =
edition =Fifth
url =
doi =
id =
isbn =0-13-187067-x

ee also

*Retirement plans in the United States
*macroeconomics of profitsharing


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Look at other dictionaries:

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  • profit-sharing — UK US (also profit sharing) noun [U] ► HR a system by which employees receive a part of the profits of a business: »The company s costs increased due to higher employee profit sharing. »a profit sharing agreement/plan/scheme …   Financial and business terms

  • profit sharing — n. the practice of dividing a share of the profits of a business among employees, in addition to paying their regular wages and salaries profit sharing adj …   English World dictionary

  • profit sharing — profit shar·ing n: a plan under which employees receive a part of the profits of an enterprise Merriam Webster’s Dictionary of Law. Merriam Webster. 1996 …   Law dictionary

  • profit sharing — profit .sharing n [U] a system by which all the people who work for a company receive part of its profits …   Dictionary of contemporary English

  • profit sharing — profit ,sharing noun uncount BUSINESS a system by which all the people employed by a company get a share in the profits …   Usage of the words and phrases in modern English

  • profit-sharing — ► NOUN ▪ a system in which the people who work for a company receive a direct share of its profits …   English terms dictionary

  • profit sharing — profitsharing, adj. the sharing of profits, as between employer and employee, esp. in such a way that the employee receives, in addition to wages, a share in the profits of the business. [1880 85] * * * System by which employees are paid a share… …   Universalium

  • profit-sharing — profˈit sharing noun A voluntary agreement under which an employee receives a share, fixed beforehand, of the profits of a business • • • Main Entry: ↑profit * * * ˈprofit sharing [profit sharing] noun uncountabl …   Useful english dictionary

  • profit sharing — noun a system in which employees receive a share of the net profits of the business (Freq. 1) • Hypernyms: ↑share, ↑portion, ↑part, ↑percentage * * * noun : a system or process under which employees receive a part of the profits of an industrial… …   Useful english dictionary

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