Profit Sharing, Gain Sharing, and Employee Stock Ownership BOH4M

Profit Sharing Giving out a share of the company’s profits to all the employees The more money the company makes, the more money the employees get Usually based on a target –i.e. our target for this quarter is $1 million in profit. If we exceed that target, 20% of any amounts beyond that will be divided among the employees

Gain Sharing Provide an incentive for savings Example: If we cut costs by 10% (saving us $500,000), we will distribute half of the savings ($250,000) among the employees Usually the savings are shared with the employees who are responsible for producing those results –i.e. if the assembly line workers develop a cost saving measure, they get the gain sharing benefit (not employees in other departments)

Employees Stock Ownership Plan (ESOP) Usually this means that the corporation contributes shares of its own stock to a trust –The trust distributes the stock to employees when they leave Stock Options – employees may buy company stock at a highly discounted price (often pegged to a previous stock price) ESOPs encourage employees to develop a sense of ownership in and commitment to the firm, and provide a real financial incentive for helping to achieve success for the company