Written by Connor Harrison
October 16, 2018
In addition to a competitive base salary, employees value other total compensation elements that help make an offer worthwhile. In addition to performance-based short-term incentive plans, profit sharing plans are another way to provide bonus pay for employees.
In profit sharing plans, payouts are contingent upon the overall financial performance of the organization. Typically, companies will use a formula to determine how much of the profits are shared, as well as how they are distributed. The performance measures used vary by organization, with consideration usually given to revenue, net income, and earnings per share. Profit sharing rewards can be the same amount for all employees or vary based on seniority and tenure.
Because they are generally available for all employees regardless of team, a profit sharing plan can unite teams around key financial goals and make them feel more invested in an organization’s success. Unlike performance-based plans that use a variety of methods to determine payouts, profit sharing plans usually require only a few metrics, simplifying communication.
Here are some of the common drawbacks your organization should be aware of when considering a profit sharing plan:
Deciding which short-term incentives are right for your organization vary widely depending on your pay philosophy, organizational goals, and how you want to motivate and evaluate your employees.
Download our white paper to further understand how organizations across the country are using market data, internal analytics, and strategic communication to establish an equitable pay structure.