profit sharing

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profit sharing,

arrangement by which employees receive, in addition to their wages, a share of the net profits of a business. The purpose is to give them an incentive to increase their output through enhanced morale, less wasteful use of materials, better care of equipment, and the like. Profit sharing does not imply participation by the workers in management. The employer determines the rate at which profits are shared; since the rate is fixed beforehand, profit sharing differs from the bonusbonus,
extra amount in money, bonds, or goods over what is normally due. The term is applied especially to payments to employees either for production in excess of the normal (wage incentive) or as a share of surplus profits.
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 system. Profit sharing plans have been in operation in France since 1842 but have not been widely adopted in the United States. The plan has been most successful in businesses where employees work without direct supervision or where it is limited to supervisory employees or lesser executives, e.g., branch managers and department managers in department stores.
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profit sharing

[′präf·ət ‚sher·iŋ]
(industrial engineering)
Sharing of company profits with the employees.
McGraw-Hill Dictionary of Scientific & Technical Terms, 6E, Copyright © 2003 by The McGraw-Hill Companies, Inc.
References in periodicals archive ?
Bottom line: If your company can afford substantial tax-deductible contributions to employees' retirement accounts, a well-publicized profit-sharing plan can be a potent motivator.
These companies are allowed to have both a defined benefit plan and a profit-sharing plan with 401(k) deferral, but the employer's profit-sharing contribution is limited to 6% of participating payroll.
Cross-testing provisions allow third-party administrators to calculate the contributions being made to a profit-sharing plan on a benefits basis so they can be compared to any benefits being provided under a defined benefit plan.
While SIMPLE plans require firms to contribute less on behalf of their employees than a SEP (the maximum firm contribution is three percent of compensation), they also sharply limit the contributions principals may make to their own accounts, in contrast to qualified profit-sharing plans. For this reason, SIMPLEs would be unattractive to any firm whose principals seek to contribute substantially more than the limit.
These changes only some of which are summarized here, will require employers sponsoring pension or profit-sharing plans to take action before the current plan year is over.
First, profit-sharing plan contribution limits will increase from 15 to 26 percent of total company payroll.
More than 850 firms run profit-sharing plans covering over a million people and more than 1,200 operate share-save schemes for more than 1.25 million people, though many companies run both types concurrently.
Fourth, profit-sharing plans that lead to no behavioral changes - that do not directly affect certain practices that waste money or increase productivity - merely degenerate into an uncertain bonus at year's end, but stimulate no extra effort on the part of the work force.
Mechanisms often take the form of stock ownership and profit-sharing plans.
The Tax Court and Fifth Circuit agreed that contributions of property to discretionary profit-sharing plans are permissible, but disagreed on the possible use of this technique to fund pension plans.
This act amounted to one of the nation's earliest profit-sharing plans, paying dividends to employees based on the company's profitability.
The terms also included new stock-option and profit-sharing plans to compensate flight attendants for the 1-year pay and benefit cuts; use of the highest earnings in 3 of the last 10 years, instead of only the last year, to compute pension benefits; an agreement to allow pregnant flight attendants to continue working until a doctor certifies disability; and a 9-month moratorium on imposing the carrier's weight restrictions policy.