MGMT Mnaaging Employee Reward Systems Profit Sharing Definition of Profit Sharing Employees share a portion of the profits based on corporate or division performance. 16 % of ‘ees in medium/large firms covered No requirement for employee involvement –more passive than gainsharing Profits shared on quarterly or annual basis. Workers share common fate with management. In US, 3/4 of plans used to fund retirement.

MGMT Mnaaging Employee Reward Systems Profit Sharing (Continued) Operational Features Tax Deferred Plan –Funds retirement - most common plan Cash Bonus Plan –Employees receive quarterly or annual check for cash –Ex: Hewlett Packard, GM, Ford, Nucor Mixed Plan –Portion of money deferred, rest is given in cash.

MGMT Mnaaging Employee Reward Systems Profit Sharing (Continued) Drawbacks Weak line of sight External factors (business cycle) can influence profits Lack of employee control May restrict management’s ability to utilize profits. Union resistance Some countries use for ideological reasons (example: Mexico requires profit sharing)

MGMT Mnaaging Employee Reward Systems Profit Sharing (Continued) Most favorable conditions for profit sharing Private sector firm Mature firm or Growing firm (not Declining firm) Firms that operate in unstable markets –“Shock Absorber” Effect - preserves jobs during business downturn. Complements “pay for performance” plans based on individual or team contributions. May support a cooperative labor relations strategy.