Profit-Sharing Programs

Profit Sharing Programs are employee incentives wherein a portion of the company’s profits will be set aside at year end and distributed to its employees. To be effective, these programs need to address the following issues:

  • Profit threshold: A designated profit level should be established as a goal to achieve. For example, the Profit Sharing Program may say that the program kicks in after the company has achieved at least $100,000 in profits for the year.
  • Percentage of profits: The percentage of profits to be shared with the employees should be established and articulated in advance. For example, you may say that 10 percent of all profits over $100,000 will be set aside for the Profit Sharing Program.
  • Eligible participants: You need to determine which employees will be eligible to participate — all employees or only certain staff members, such as the sales employees. Alternatively, you may decide that although the amount of the profit sharing pool is fixed in advance, the recipients are picked individually by the company’s management.
  • Continuing employment: The program may also state that to be eligible the employee must be employed the entire year and also employed at the time that the profit sharing amounts are to be distributed. You want to avoid giving a profit sharing award to someone whom you no longer employ.

Make sure to integrate your program into your other benefit programs so that your total benefits package is attractive and motivates employees.