Profit sharing

Profit sharing refers to various

to employees.

The profit sharing plans are based on predetermined

For example, suppose the profits are ${\displaystyle x}$, which might be a random variable.[5] Before knowing the profits, the principal and agent might agree on a sharing rule ${\displaystyle s(x)}$.^[5] Here, the agent will receive ${\displaystyle s(x)}$ and the principal will receive the residual gain ${\displaystyle x-s(x)}$.^[5]

Profit-sharing tends to lead to less conflict and more cooperation between labor and their employers.^[6][7]

History

American politician Albert Gallatin had profit-sharing institutions on his glass works in the 1790s. Another of early pioneers of profit sharing was English politician Theodore Taylor, who is known to have introduced the practice in his woollen mills during the late 1800s.^[8] In the United Kingdom, profit-sharing became prominent in the 1860s.^[9][10]

Economists debated profit-sharing in major economic journals in the 1880s.^[11][12] William Cooper Procter established a profit-sharing plan in Procter & Gamble in 1887.^[13]

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Europe

Management's share of profits

The share of profits paid to the management or to the

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.

United States

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

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).
• Rucker plan: This plan also uses committees, but although the committee structure is simpler the cost-saving calculations are more complex.^[14] A ratio is calculated that expresses the value of production required for each dollar of total wage bill.
• Improshare: Improshare stands for "Improved productivity through sharing" and is a more recent development. 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.^[15]

See also

• Co-determination
• Employee stock ownership
• Joint venture
• Mutualization
• Retirement plans in the United States
• Social dividend

References

External links

• Quotations related to Profit sharing at Wikiquote