Show Digital Library > Human Resources Management > Employee ownership"Profit-Sharing Options: Pros and Cons" Consider profit sharing as a way to keep employees happy, interested and motivated. Their personal "ownership" of your company will return rewards to everyone. Here we give you profit-sharing choices (other than stock options), and the pros and cons of each. OVERVIEW [top] Share the wealth. It's a simple phrase, but it means so much. Employers who let employees share in the success of the company know that employees pay back that investment with greater loyalty, more productivity and expanded creative energy. "It's the difference between renting a car and owning a car," says Debra Sherman, marketing manager with the Foundation for Enterprise Development. People take better care of something they own. But don't leap directly to "stock options" when you think about a profit-sharing plan. Incentive plans take many forms. What's the best choice? It depends on your company's strategic objectives. In this Quick-Read, we will:
SOLUTION [top] Reasons for having a profit-sharing plan:
Issues to consider when creating a profit-sharing plan:
Various profit-sharing strategies, advantages and disadvantages:
REAL-LIFE EXAMPLE [top] "I wanted to build a company that treated its employees right and to create a company that I myself wanted to work in," says Sabrina Horn, founder and owner of the Horn Group, a public relations firm with headquarters in San Francisco. With annual profit sharing, quarterly bonuses, a 401(k) plan with a 20% match, and a chance for employees to share in the public-market-equity valuations of its high-tech clients, Horn's company has delivered on her dream. Founded in 1991 and since selected to the Inc. 500, the Horn Group is projected to grow 48% in billings to around $9 million this year. It offers no stock options because Horn has no plans to take it public. Every year, the company sets a revenue target. Meeting the target — as it has, eight years running — kicks profit back to workers, based on base salary. Payouts range from $750 to around $14,000. Incentive-based quarterly bonuses can add $4,000 to $16,000 more to annual paychecks. When client companies go public, stock taken in lieu of cash is sold, and more than 50% of proceeds go to employees. Horn says her company's profit-sharing plans have been critical to improving its hiring and retention efforts. DO IT [top]
RESOURCES [top] Books Gainsharing and Power: Lessons from Six Scanlon Plans by Denis Collins (Cornell University Press, 1998). Collins first describes the experiences of six companies that implemented Scanlon plans. One chapter, "Power Games, Outcomes, and Lessons Learned," offers conclusions and tips for gain-sharing plan implementation. Entrepreneur's Guide to Equity Compensation, 3rd edition, edited by Ron Bernstein. (Foundation for Enterprise Development, 2002). 1001 Ways to Reward Employees by Bob Nelson (Workman Publishing, 1994).
Foundation for Enterprise Development Employee Benefit Research Institute The National Center for Employee Ownership Scanlon Leadership Network
Writer: Stu Watson What is the difference between profit sharing and ESOP?Profit sharing plans are regarded primarily as employee benefit plans. The ESOP is primarily regarded as a “tool of corporate finance,” according to IRS rulings and regulations. Accordingly, ESOPs are permitted under profit sharing plans.
Which of the following is a drawback of using profit sharing?Which of the following is a drawback of using profit sharing? It runs the risk of contributing to employee dissatisfaction.
What is the difference between profit sharing and bonus?In most cases, bonuses are a tax benefit to the employer. Profit Sharing is an arrangement between an employer and an employee in which the employer shares part of its profits with the employee. The key difference between a bonus and profit sharing is that there must be profit before any is shared with the employee.
What is a profit sharing plan quizlet?A profit sharing plan is a plan established and maintained by an employer to provide for the participation in profits by employees or their beneficiaries. It is primarily a plan of deferred compensation and thus tax deferral.
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