What is profit sharing?
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.
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 ...
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
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.
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.