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What is profit sharing?

Profit sharing

Wikipedia

Profit sharing, when used as a special term, 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 salary and bonuses. In publicly traded companies these plans typically amount to allocation of shares to employees.
[...]

But can profit sharing really work in America?  

A country that celebrates limitless wealth.


Profit Sharing

Encyclopedia of Small Business, 2007, Thomson Gale.

"Profit sharing" is a type of compensation paid to employees by companies. Payment of a profit sharing bonus to non-management employees typically takes place at the discretion of the company and does not constitute an entitlement -- although if it is paid routinely and year after year, employees may come to count on it as part of their compensation. Profit sharing bonuses are treated as income for tax purposes upon receipt unless made to deferred compensation plans.

As part of its National Compensation Survey, the U.S. Bureau of Labor Statistics (BLS) collects data on cash profit sharing bonus payments to employees. Data for 2005 indicated that 5 percent of all workers had access to such bonuses. The BLS data may actually understate the prevalence of profit sharing because it also reports "end-of-year bonus" and "holiday bonus" categories, both of which are higher, 11 and 10 percent of workers receive such bonuses respectively. Many small businesses pay such bonuses at the end of the year and without labeling them as "profit sharing" -- but the bonuses are only paid in good years.
[...]

Companies may determine the amount of their profit-sharing contributions in one of two ways. One is by a set formula that is written into the plan document. Such formulas are typically based on the company's pretax net profits, earnings growth, or some other measure of profitability. Companies then plug the appropriate numbers into the formula and arrive at the amount of their contribution to the profit-sharing pool. Rather than using a set formula, companies may decide to contribute a discretionary amount each year. That is, the company's owners or directors -- at their discretion -- decide what an appropriate amount would be.

Once the amount of the company's contribution has been determined, different plans provide for different ways of allocating the funds among the company's employees. The employer's contribution may be translated into a percentage of the company's total payroll, with each employee receiving the same percentage of his or her annual pay. Other companies may use a sliding scale based on length of service or other factors. Profit-sharing plans also spell out precisely which employees are eligible to receive profit-sharing distributions. Some plans may require employees to reach a certain age or length of employment, for example, or to work a certain minimum number of hours during the year.
[...]


SO, it IS Possible.  It's just not Popular.


Question is -- Why Not?


Why America needs more companies offering more profit sharing plans ... from among a nationful of such Why's ...


Detroit Auto Companies Struggle With Union Profit-Sharing Idea

Editing by Kevin Krolicki, Thomson Reuters; huffingtonpost -- Updated: 09/04/11

DETROIT (Bernie Woodall) - Over the past two years, Ford Motor Co has roared back from the brink of failure, won accolades for its gains in quality, posted its highest profits in a decade and rewarded patient investors with a 14-fold increase in its share price.

But Mike LeBeau, 23, who works at a Ford assembly plant in Chicago making around $15 per hour and lives at a bedroom in his parent's house, is not feeling the good times yet.

Like thousands of newly hired unionized auto workers brought in at half the wages of existing hires, he and others like him are looking for new contracts between the United Auto Workers and the Detroit automakers to share the wealth.
[...]


Here's another look at those diametrically opposed trends ... trends far too often at "cross-purposes" to the wider health of a society, as a whole ...

the Profits-to-Wages trend.


Off The Charts

As Corporate Profits Rise, Workers’ Income Declines

by Floyd Norris, NYTimes.com -- August 5, 2011

[...]
The new figures indicate that corporate profits accounted for 14 percent of the total national income in 2010, the highest proportion ever recorded. The previous peak, of 13.6 percent, was set in 1942 when the need for war materials filled the order books of companies at the same time as the government imposed wage and price controls, holding down the costs companies had to pay.
[...]



larger image

Total employee compensation, including benefits, rose 6.6 percent, although wages and salaries gained only 5.6 percent. Corporate profits were 11.9 percent higher, while proprietors’ income was down 8.5 percent. Corporate profits more than kept up with inflation. Other categories of income did not.

It can be misleading to look at shares of income without examining their magnitude. A small share of a big pie may be larger than a big share of a small pie. The record high share for wages and salaries, of 59.7 percent, came in 1932. Worker pay was plunging in those days, but not as fast as corporate profits. Companies as a group lost money that year.

Nonetheless, President John F. Kennedy’s observation that a rising tide lifts all boats is no longer as true as it once was.
[...]



Break out the paddles folks.  Push, push.   Keep pushing.

That bright future is just around the corner ... if only we can clean house first ...

The Tea Party House.   Those boat-sinkers should all be sent packing.  Hand them their hip-boots, and a swift kick in ... their Union-busting agendas.


We need a Congress that puts Workers first.

We need a Congress that believes in the principles of a Living Wage.

No matter how practical, it may or may not, currently be.




Originally posted to Digging up those Facts ... for over 8 years. on Tue Apr 24, 2012 at 04:46 PM PDT.

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Comment Preferences

  •  Tip Jar (13+ / 0-)


    What is necessary to change a person is to change his awareness of himself.
    -- Maslow ...... my list.

    by jamess on Tue Apr 24, 2012 at 09:39:51 AM PDT

  •  Income Inequality (5+ / 0-)


    Income Inequality is not just political rhetoric

    it is a very real economic condition that threatens to sink,

    our once vibrant, and growing middle class economy:



    The Top 1 Percent got 93% of the Gains
    by jamess -- Apr 22, 2012


    What is necessary to change a person is to change his awareness of himself.
    -- Maslow ...... my list.

    by jamess on Tue Apr 24, 2012 at 09:46:11 AM PDT

  •  Social Security and Medicare (1+ / 0-)
    Recommended by:
    commonmass

    are about to be put back on that rhetorical "chopping block" too.


    Oh Noes! Lions and Tigers and Social Security
    by jamess -- Apr 24, 2012


    When will this conservative War against Workers ever end?


    What is necessary to change a person is to change his awareness of himself.
    -- Maslow ...... my list.

    by jamess on Tue Apr 24, 2012 at 04:50:24 PM PDT

  •  Profit sharing... (2+ / 0-)
    Recommended by:
    commonmass, jamess

    U.S.autoworkers in the early 80's exchanged their 3% annual raises for profit sharing.

    Worst idea ever. I worked for GM, and there were years when we received next to nothing while executives enjoyed fat bonuses. One year we got $50 each. The worst was probably the year they bought out Ross Perot's company stock to get him to leave the board. Ross got $650 million, hourly workers received nothing.

    A raise is forever. It increases sick pay, vacation pay, shift premiums, and every other part of compensation that is based upon the hourly rate. At GM only North American profits were considered, an incentive for creative bookkeeping that attributed earnings to foreign operations.

    When I retired I was making $28 per hour. If the 3% raise had been retained, I'd have been making $40 per hour. To me, the choice is clear. Take the sure thing.

    Tying large portions of your compensation to company performance is no different than having nothing but company stock in your 401(k).

    "A lie is not the other side of a story; it's just a lie."

    by happy camper on Tue Apr 24, 2012 at 05:15:30 PM PDT

    •  good to know, happy camper (2+ / 0-)
      Recommended by:
      happy camper, Nada Lemming

      but it's not like they're handing out 3% raises like candy these days ...

      often the opposite is true ... as I underlined in the post above

      DETROIT (Bernie Woodall) - Over the past two years, Ford Motor Co has roared back from the brink of failure, won accolades for its gains in quality, posted its highest profits in a decade and rewarded patient investors with a 14-fold increase in its share price.

      But Mike LeBeau, 23, who works at a Ford assembly plant in Chicago making around $15 per hour and lives at a bedroom in his parent's house, is not feeling the good times yet.

      Like thousands of newly hired unionized auto workers brought in at half the wages of existing hires, he and others like him are looking for new contracts between the United Auto Workers and the Detroit automakers to share the wealth.
      [...]


      new hires were getting HALF the previous wage.


      What is necessary to change a person is to change his awareness of himself.
      -- Maslow ...... my list.

      by jamess on Tue Apr 24, 2012 at 06:01:40 PM PDT

      [ Parent ]

      •  See my comment (2+ / 0-)
        Recommended by:
        jamess, tle

        here for some perspective on the two tiered wage.

        A lot of us opposed it at the time, even though it affected no one, since hiring was not on the horizon at all. A core principle of the union, equal pay for equal work, was violated. Management benefits not only by paying lower wages, but by dividing workers into two groups, undermining union solidarity. It was a bad deal. Workers making the full wage will see no increases until the new hires have caught up--the union would never be able to justify it, nor should they. So,  effectively the companies have frozen wages and benefits at roughly 2008 levels for however long they can drag their feet on raises for the new guys.

        A slight quibble: they never did "hand out" raises. We got them because we demanded them. Management has never given up anything voluntarily, and they always stand ready to take it back.

        "A lie is not the other side of a story; it's just a lie."

        by happy camper on Tue Apr 24, 2012 at 08:23:11 PM PDT

        [ Parent ]

  •  Living wage. Come on. (3+ / 0-)
    Recommended by:
    jamess, Wee Mama, Nada Lemming

    Never in our lifetime.

    Santorum: Man on Dog; Romney: Dog on Car. Ren and Stimpy: Dog on Cat equalitymaine.org

    by commonmass on Tue Apr 24, 2012 at 05:18:09 PM PDT

  •  Used to be big in the 80s..... (2+ / 0-)
    Recommended by:
    jamess, Wee Mama

    .....so did Employee Stock Ownership Plans.

    At some point, companies decided that capitalism was only for the rich.

    If Obama doesn't deserve credit for getting Bin Laden because he didn't pull the trigger, Bin Laden doesn't deserve the blame for 9-11 because he didn't fly the planes.

    by Bush Bites on Tue Apr 24, 2012 at 05:23:50 PM PDT

  •  mr.u's former employer (2+ / 0-)
    Recommended by:
    jamess, Wee Mama

    offered us profit sharing. He sold the company and the new guys switched it to a 401k then mr.u was let go. We took the money and put it in a guaranteed return annuity. That was in '07. Boy are we glad we did that! We've been able to pull from it as we need it and it's made enough money that as of 10-'13 it will be worth what we put in to start with.

    "But much to my surprise when I opened my eyes I was the victim of the great compromise." John Prine

    by high uintas on Tue Apr 24, 2012 at 05:49:15 PM PDT

    •  good timing in 07 (2+ / 0-)
      Recommended by:
      Wee Mama, high uintas

      if only we were all so insightful.


      What is necessary to change a person is to change his awareness of himself.
      -- Maslow ...... my list.

      by jamess on Tue Apr 24, 2012 at 05:56:52 PM PDT

      [ Parent ]

      •  It was sheer terror (1+ / 0-)
        Recommended by:
        jamess

        mr.u had just been fired after working there for over 21yrs and we had already seen what damage the market could do. We both were nearing 57 and didn't trust what might come down, one thing we did know was that the housing was a bubble, we'd seen one in the 80s.

        Our luck was being credit union members gave us access to a financial guy who helped us. More luck than true insight.

        "But much to my surprise when I opened my eyes I was the victim of the great compromise." John Prine

        by high uintas on Wed Apr 25, 2012 at 10:28:55 AM PDT

        [ Parent ]

  •  Great diary - I hope it gets the eyeballs it (1+ / 0-)
    Recommended by:
    jamess

    deserves!

    Is it true? Is it kind? Is it necessary? . . . and respect the dignity of every human being.

    by Wee Mama on Tue Apr 24, 2012 at 07:11:18 PM PDT

  •  I've been known to advocate for an entity I call (1+ / 0-)
    Recommended by:
    jamess

    "family owned corporations". Like profit sharing, etc, except that the stated objective is to promote companies where much of both management and labor are all family members. And where everyone else is guaranteed equal treatment. I mean, it's inconceivable to me that ownership/management would fuck their own relatives just so that they could fuck the rest of their workers also.

    And also that the workforce would not respond appropriately to any and every challenge if there was 100% confidence that their every success would be equally and completely rewarded.

    There can be no protection locally if we're content to ignore the fact that there are no controls globally.

    by oldpotsmuggler on Tue Apr 24, 2012 at 07:37:33 PM PDT

    •  sounds similar (0+ / 0-)

      to employee-owned businesses.

      Michael Moore covered those in his movie on Capitalism.


      both, that and family-owned, sound way better than what we have now.

      fairer too.


      thx oldpotsmuggler


      What is necessary to change a person is to change his awareness of himself.
      -- Maslow ...... my list.

      by jamess on Tue Apr 24, 2012 at 08:12:49 PM PDT

      [ Parent ]

  •  A good agent gets you a share of the gross, not (1+ / 0-)
    Recommended by:
    jamess

    a share of the net.

    Where are we, now that we need us most?

    by Frank Knarf on Tue Apr 24, 2012 at 08:52:28 PM PDT

  •  Andersen Windows (1+ / 0-)
    Recommended by:
    jamess

    Is a profit sharing company that actually trickles down.  If you're in the market for windows, consider them.  From the janitors to the floor workers, you have never seen a more motivated workforce.  http://www.andersenwindows.com/

    Folks make bonuses equal to or greater than their annual salary.  

    But like some here have said, it's not really about workers anymore, it's about the 1%.  

    If you haven't earned my vote when the time comes, don't blame me when you lose.

    by Nada Lemming on Tue Apr 24, 2012 at 09:43:46 PM PDT

  •  Ah, those were the days (1+ / 0-)
    Recommended by:
    jamess
    although if it is paid routinely and year after year, employees may come to count on it as part of their compensation.
    I worked for more than 20 years at a company that was very hostile to unions, but when I started, they were giving out big lump-sum bonuses, effectively profit-sharing.  I think they kept salaries a little lower, but made up for it big time with the bonuses.  Unfortunately, many of the employees did count on it.  I never did, I would just deposit in the bank when I received it.  I accumulated a tidy sum.

    I am become Man, the destroyer of worlds

    by tle on Wed Apr 25, 2012 at 07:50:15 AM PDT

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