Profit Sharing scheme is a scheme under which the employers agree to pay a specific part of the profits of their concern to their employees over and above the wages and salaries. This scheme is becoming more and more popular day by day. The traditional concept of profit was that the profit is an exclusive right of the owners. With the changed times, this concept has also changed. Now the workers are regarded, as the partners of the industry and therefore, the profits of the industry must be shared with the workers also. With this view in mind, the workers are paid a certain and pre-determined share in the profits of the enterprise so that they may be motivated to work more and more. Share in profit is paid to them in addition to their wages and salaries. The term 'Profit Sharing' has been defined as under:
"Profit Sharing is an arrangement entered into, by which the employee receives a share, fixed in advance, of profits."
H.R Seager,
"Profits Sharing is a method of industrial remuneration under which an employer undertakes to pay his employees a share In the net profits of the enterprise, in addition to their regular wages."
I.L.0. General Report, 1948,
"Profit Sharing is an agreement (formal or informal) freely entered into by which the employees receive a share, fixed in advance, of the profits."
International Conference, 1899 Paris,
"Profit Sharing is a scheme whereby, a certain percentage of the profits is distributed at fixed intervals usually annually or semi-annually in some definite ratio to all employees who have been the employees of the firm for a stated term."
Kimball and Kimball,
On the basis of an analytical study of the above definitions, Profit Sharing is a scheme under which an employer undertakes to pay his employees a share in the profits of the enterprise, in addition to their regular wages.
CHARACTERISTICS OF PROFIT SHARING
On the basis of the study of the meaning and definition of Profits Sharing, the characteristics of profit sharing may be summarised as follows :
1. The share of profit to be paid to the employees is determined in advance and the management can make no change in it later on.
2. This scheme is extended to all the employees working in the enterprise irrespective of the nature of job.
3. The profit is paid to the employees in addition to their regular salaries and wages.
4. Only the profits are shared and note the losses.
5. This scheme is not a method of wage payment because it is neither based on time nor on production. It may be called additional remuneration.
6. Other schemes of motivation can also be adopted along with the scheme of profit sharing. The object of this scheme is to motivate the employees.
7. The number of profits may be paid either in cash or it may be transferred to a provident fund or the shares equal to the amount of profit can be allowed under the profit-sharing scheme.
8. Generally the profits are shared once a year.
RELATED TOPIC
Characteristics of Human Resource Management
Objective of Human Resource Management
Scope of Human Resource Management
