In a BLR webinar entitled ‘Incentive Pay: Best Practices for Designing and Managing Pay-for-Performance Plans’, Dan Kleinman discusses the use of profit sharing plans as a type of incentive pay within an organization. As described by Kleinman, in profit sharing plans, employees’ pay is tied to the profits of the organization, so that a portion of the employer’s profits will be shared with them if specific business goals are achieved. An example is provided:
- a company aims to earn $1 million in extra profits over a given year
- the company reaches that goal
- then, the workers will split a share of those additional earnings
Profit sharing plans may be current distribution plans (e.g. immediate cash bonuses), deferred payout plans (e.g. stock or funds invested in a retirement program), or a combination.
Dan Kleinman is the principal of Dan Kleinman Consulting, a California-based compensation and human resource consulting firm. He can be reached at email@example.com.