Posts: 247
Threads: 124
Joined: Nov 2011
What do you understand by profit sharing?
Posts: 247
Threads: 124
Joined: Nov 2011
According to Prof. Seager "profit sharing is an arrangement by which employees receive a share, fixed in advance of the profits." The International Co-operative Congress 1889 defined profit sharing as "an agreement (formal or informal) freely entered into, by which an employee receives a share fixed in advance of the profits." Profit sharing usually involves the determination of an organisations' profits at the end of the fiscal year and the distribution of a percentage of the profits to workers qualified to share in the earnings.
The following are the main features of profit sharing:
(1) There is mutual sharing of the profits between the owners and workers on the basis of an agreement between the two.
(2) The payment arising from profit sharing is over and above the normal wages paid to the workers.
(3) The payment is made after ascertaining the net profits of the company. Thus it is not a part of the cost of production or a charge on profits.
(4) The payment is made only when the profits cross a certain level.
(5) The payment is based on seniority and or wage level of each individual employee.
(6) The payment represents a reward for group-effort and efficiency and is made to all grades of employees.
Aims of profit sharing
The aims of profit sharing may be summarised as follows:
1. It supplements the earnings of workers and thus, at least partly, bridges the gulf between the fair- wage and actual wage.
2. It gives the workers an opportunity to share in the prosperity of the firm for which, to a large extern, they are themselves responsible.
3. It seeks to reconcile the interests of the management and workers and promotes a mutually beneficial partnership between them.
