Profit sharing facts for kids

Profit sharing is a special way businesses can pay their employees. It's like a bonus that depends on how well the company is doing. If the company makes a good profit, employees get an extra payment! This is on top of their regular salary and any other bonuses.

Sometimes, in big companies whose shares are traded publicly, this extra payment might even be in the form of company shares given to employees. Profit sharing helps employees and employers work together better. It can lead to less conflict and more cooperation.

History of Profit Sharing

Profit sharing has been around for a long time. In Indonesia, it was common among traditional fishing groups. In Western countries, an American politician named Albert Gallatin first used it in his glass factories in the 1790s.

However, the modern idea of profit sharing grew more in the 1800s. For example, William Cooper Procter started a profit-sharing plan at his company, Procter & Gamble, in 1887. Another early supporter was an English politician named Theodore Taylor. He brought profit sharing to his wool factories in the late 1800s.

Profit Sharing in the United States

In the United States, companies can set up a special profit sharing plan. This plan allows some or all of an employee's profit-sharing money to go into a retirement plan. These plans are often used along with other retirement savings plans, like a 401(k) plan. This helps employees save for their future while also benefiting from the company's success.

Understanding Gainsharing

Gainsharing is a bit different from profit sharing. It's a program where employees get a bonus if they help the company save money. For example, if workers find a way to make things more efficiently, the money saved is shared with them. This is usually paid as a one-time bonus.

There are three main types of gainsharing plans:

• Scanlon plan: This plan started in the 1930s. It uses committees of employees to come up with ideas to save costs. The goal is to lower labor costs without reducing how much work the company does.
• Rucker plan: This plan also uses committees, but the way they calculate the cost savings is more complex.
• Improshare: This name stands for "Improved productivity through sharing." In this plan, a company sets a standard for how many hours it should take to make something. If workers produce it faster, the time saved is shared between the company and the workers.

See also

• Co-determination
• Employee stock ownership
• Joint venture
• Mutualization
• Retirement plans in the United States
• Social dividend