What Is a Deferred Profit Sharing Plan?

A company-wide rewards program pays employees when the company exceeds minimum performance standards, such as profits or company value based on stock prices.

Company-wide Reward Program

This entry lacks an overview map . Supplementing related content makes the entry more complete and can be upgraded quickly. Come on!

A company-wide rewards program pays employees when the company exceeds minimum performance standards, such as profits or company value based on stock prices.

Chinese name

Company-wide Reward Program

Attributes

Minimum performance

Corresponding

Company value

Object

Employee

1. Profit Sharing Plans

Give financial rewards to employees when the company reaches its profit target. But it has nothing to do with the adjustment of basic wages, living expenses or permanent increase in performance wages. Two types:

Pay-as-you-go : Cash awards are usually issued quarterly or annually.

Deferred system : The cash bonus is stored in the account for employees as their income after retirement.

Human resources professionals use one of three ways to determine the amount of profit sharing.

The first is the fixed ratio method. The company determines a percentage based on the success of the goal. The percentage of tax or annual profit after tax is used as a profit sharing bonus. For example, a company may decide to use 7% of the company's profits for profit sharing.

Second, companies can also use the proportional upgrade method instead of the fixed proportional method. For example, the company can decide that profits within 8 million US dollars, 3% employment profit sharing, more than 8 million profits, 6% for profit sharing. The proportional upgrade method can encourage employees to work towards excess profit goals by increasing the amount of sharing.

Third, the profit margin method is to share profits only when the company's profit exceeds a predetermined minimum standard and falls below the maximum standard. The company establishes a minimum standard to ensure the company's return to shareholders before distributing profits to its members. Establishing the highest standards for the company to create profits that exceed this standard is not employee productivity or creativity, but factors such as technological innovation.

Advantages and disadvantages: The advantage is that it benefits both employees and the company. The disadvantage is that if the profit sharing plan accounts for a large proportion of direct compensation, it is difficult for employees to predict their own income, which may weaken their financial security. For companies, this can lead to brain drain. 2. Employee Stock Option Plan (Employee Stock OptionPlans) The employee stock option plan is a special compensation plan that refers to the benefit-sharing mechanism of attracting, retaining, and motivating employees of the company by allowing employees to hold stocks so that employees can enjoy residual claims And participation mechanisms with operational decision-making power. The employee stock ownership plan is essentially a benefit plan that is applicable to all employees of the company. The company allocates the company's stock according to factors such as salary levels or working years.

1. Advantages: It is beneficial to both the company and employees.

2. Disadvantages: It is difficult for employees to predict their own income. For enterprises, the performance of employees is not directly related to salary, which is not conducive to motivating employees.