profit sharing

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Profit Sharing

A plan by which an employer distributes a set percentage of the company's profits to its employees. Employers may distribute the portion of its profits immediately (that is, employees may receive what amounts to a bonus) or it may set up a series of accounts for employees and defer the profit sharing until employees retire. The idea behind profit sharing is to give employees an incentive to work for the company's profitability. See also: DPSO, ESOP.

Profit sharing.

A profit-sharing plan is a type of defined contribution retirement plan that employers may establish for their workers.

The employer may add up to the annual limit to each employee's profit-sharing account in any year the company has a profit to share, though there is no obligation to make a contribution in any year.

The annual limit is stated as a dollar amount and as a percentage of salary, and the one which applies to each employee is the lower of the two alternatives.

Employers get a tax deduction for their contribution. Employees owe no income tax on the contributions or on any of the earnings in their accounts until they withdraw money.

In some cases, employees in the plan may be able to borrow from their accounts to pay for expenses such as buying a home or paying for college.

Profit-sharing plans offer employers certain flexibility. For example, in a year without profits, they don't have to contribute at all. And they can vary the amount of each year's contribution to reflect the company's profitability for that year.

However, each employee in the plan must be treated equally. This means that if an employer contributes 10% of one employee's salary to the plan, the employer must also contribute 10% of the salaries of all other employees in the plan.

profit sharing

the distribution of some portion of PROFITS to the employees of a company. It can take the form of an annual cash bonus based on the previous year's profits or it can form an element of weekly or monthly pay (see PROFIT-RELATED PAY). Less direct forms of profit sharing include allocation to employees of shares in the company, paid for out of company profits, and providing employees with the option to buy shares at some point in the future at current prices, thereby enabling them to benefit from both the share dividend and any growth in share value resulting from increases in profitability (see EMPLOYEE SHARE OWNERSHIP PLAN). Profit sharing is often advocated to improve employee commitment and thereby improve PRODUCTIVITY. See FINANCIAL PARTICIPATION.

profit sharing

the distribution of some portion of PROFITS to the employees of a company. It can take the form of an annual cash bonus based on the previous year's profits, or it can form an element of weekly or monthly pay (see PROFIT-RELATED PAY). Less direct forms of profit sharing include allocation to employees of shares in the company, paid for out of company profits, and providing employees with the option to buy shares at some point in the future at current prices, thereby enabling them to benefit from both the share dividend and any growth in share value resulting from increases in profitability (see EMPLOYEE SHARE OWNERSHIP PLAN). Profit sharing is often advocated to improve employee commitment and thereby improve PRODUCTIVITY. See PRINCIPAL-AGENT THEORY.
References in periodicals archive ?
UAL rolled out the Success Sharing bonus program as a method to engender a "We're all in this together" team spirit.
At the Austin meeting, members and guests will trade insights and implementation solutions through detailed presentations, success sharing, management roundtables and knowledge exchanges.
The cash balance decreased approximately $108 million during the month of January, driven by a quarterly Success Sharing reward to employees of $22 million and seasonally weak cash flow.
In September, members and guests will trade insights and implementation solutions through detailed presentations, success sharing, management roundtables, knowledge exchanges and informal conversations.
In addition, The Home Depot will pay a record $90 million to associates through its Success Sharing program, nearly double what it paid in 2003.