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March 23, 2010
Creating Profit Sharing Plans in an Organization for the Purpose of Incentive Pay

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:

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  • 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

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