Asked by Ahmed Rashik on Jun 09, 2024
Verified
Identify and briefly comment on the key issues in designing profit-sharing plans.
Profit-sharing Plans
A type of incentive plan that distributes a portion of an organization's profits to its employees, linking compensation to the company's financial performance.
Designing
The act of creating, planning, and executing a plan or structure for a project, system, or object with specific objectives in mind.
- Gain insights into the design considerations necessary for effective profit-sharing plans.
Verified Answer
LN
Lakenya NicoleJun 14, 2024
Final Answer :
Profit-sharing plans have the following design issues: the form of bonus payout determination,the formula for bonus determination,employee eligibility,the basis for allocating the profit-sharing bonus across employees,payout frequency,and communicating financial results and profit sharing.The following bonus payout options are available: deferred,cash,stock,or a combination of these.For motivational reasons,fixed formula plans are recommended over using a discretionary approach to bonus determination.In most cases,there is a time period for employee eligibility,and the more inclusive the better,although casual,contract,and unionized employees are often excluded.Allocation of profit-sharing bonuses is based on salary,seniority,performance,a combination of these,or equal distribution.Payouts should occur no more often than quarterly,and an annual basis is probably best.Most firms distribute financial statements and profit-sharing newsletters on a regular basis.
Learning Objectives
- Gain insights into the design considerations necessary for effective profit-sharing plans.
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