3. Profit sharing refers to various incentive plans
introduced by businesses that provide direct or indirect
payments to employees that depend on company’s
profitability in addition to employees’ regular and
bonuses. In publically traded companies these plans
typically amount to allocation of shares to employees.
The basis for profit sharing distribution to employees are
performance and job levels.
All employees’ compensation outside of salaries and
wages , such as employee’s benefits are already considered
part of the employee’s 50% profit shares. These are not
part of operating expenses.
4. Suppose the profit are “x” which might be a random
variable. Before knowing the profits, the profits, the
principle agent might agree on a sharing rule s(x).
Here, the agent will receive s(x) and the principle will
receive the residual gain x-s(x).
5. If and when the company incurs a loss or when the
employees in a particular year, the losses ( which
include the inflation factor) will be a receivable of
the company from the employees’ profit share in the
next profitable year (s).
A maximum of 50% of the profit share for
distribution shall be used to pay for the losses of the
previous year (s).
6. 1. The difference between the compensation , both salary &
profit share , of the highest and the lowest ranking
employees should be reasonable.
2. In line with, are the principles of proper governance, the
owner should use the company’s recourses only for
legitimate business related purposes and there should be
proper accounting for this.
3. There should be transparency in the financial statements.
7.
8. 1. Also known as incentive wage method.
2. It is a hybrid version of time wage system and piece rate
system.
3. This system induces worker to produce more incentive
wage plans is that they adjust earnings to output or
production, thus providing a special financial incentive
for increasing effort while guaranteeing the minimum
wages.
4. The incentive wages are given in the form of 'premium'
or 'bonus' calculated on the basis of efficiency of
workers, time saved or increased production.
9. 1. Halsey Premium plan
2. Halsey-Weir Premium plan
3. Rowan system
4. Barth variable sharing plan
5. Emerson efficiency bonus
6. Bedaux point premium system
7. Accelerating premium plan
10.
11. • instituted by Joseph N.Scanlon(1899–1956) a steelworker, cost
accountant, professional boxer, local union president, Acting Director
of the Steelworkers Research Department, and Lecturer at the
Massachusetts Institute of Technology (MIT)
•A gain sharing/profit sharing program in which employees share in
specific cost savings that are due to employee effort.
•The Scanlon Plan involves much employee participation, predating
quality circles with most of the same techniques.
•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).
12. 2 Basic Features
Financial incentives are used to increase productivity and to
reduce costs
Suggestions from employees for increasing productivity
Conditions for Scanlon:
No of Workers should be below 1000
Product line and cost are stable
Healthy IR and good supervision.
Strong commitment form Management.
