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 ?
The profit sharing system is a step ahead because it makes mobilizes the efforts of employee and employer towards increased in quality productivity.
It will be convenient below to show the effect of profit sharing on equilibrium unemployment by deriving its effect on [Mathematical Expression Omitted] in equilibrium.
Unlike profit sharing plans, gainsharing plans need not be reported to the Internal Revenue Service, so the exact number of these plans is unknown.
Turning to the results on productivity first, Kruse finds that productivity growth in profit sharing companies is 3.
The age-weighted profit sharing plan does not differ in any other respect from the traditional profit sharing plan.
The authors also discuss several statistical studies that showed a possible link between profit sharing and productivity.
Annual contributions to an Individual 401(k) Plan consist of two parts: a tax deductible salary deferral contribution plus an additional tax deductible profit sharing contribution.
Eliminating profit sharing plans is a way for regulators to move the sales distribution system away from the independent agent and the smaller, regional companies that depend on independent agents.
Wescast attributed the recognition to its "Scanlon" system of participative management, which centers around monthly gainsharing, annual profit sharing, cross-functional teams, encouraging suggestions, continuous training and communication.
Their separate union agreement bases profit sharing on Saturn's performance, not on that of the corporation as a whole.
A significant number of individuals have accumulated substantial amounts in their qualified pension or profit sharing plans.
Profit sharing as a form of employee compensation has a long history in the United States.