Stock Profit sharing.

December 23, 2020 By Swapnil Suryawanshi

Profit sharing 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. One of the earliest pioneers of profit sharing was Englishman Theodore Cooke Taylor, who is known to have introduced the practice in his woollen mills during the late 1800s

Profit sharing :

Both casual and professional stock investors, as large as institutional investors or as small as an ordinary middle-class family, through dividends and stock price increases that may result in capital gains, share in the wealth of profitable businesses. Unprofitable and troubled businesses may result in capital losses for shareholders.

How Does Profit Sharing Work? | King University Online

Gainsharing :

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. Designed to lower labor costs without lowering the level of a firm’s activity. The incentives are derived as a function of the ratio between labor costs and sales value of production (SVOP).


Main article: Profit-sharing agreement (USA)

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.

What is profit sharing and how does it work :

profitsharing plan gives employees a share in their company’s profits based on its quarterly or annual earnings. It is up to the company to decide how much of its profits it wishes to share. Contributions to a profitsharing plan are made by the company only; employees cannot make them, too.

Is Profit Sharing a good idea :

Profitsharing plans can be a great way to improve and keep employee morale, loyalty, and retention up. They are also a good way to motivate employees in participating in earning and protecting company profits because as part of the plan they have a vested interest in doing so.

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