DISADVANTAGES OF PROFIT SHARING

 

DISADVANTAGES OF PROFIT SHARING


DEMERITS OF PROFIT SHARING


Though Profit Sharing Scheme is becoming very popular these days but it is also not free from criticism. The disadvantages of this scheme may be summarised as follows:


(1) Uncertain Amount of Dividend:

The amount of dividend that is paid to the workers is always uncertain under this scheme because it depends upon the amount of profit of the enterprise which is always uncertain. It reduces the enthusiasm and interest of workers.


(2) Lack of Direct Relationship between Efforts and Reward:

This scheme does not establish a direct relationship between efforts and reward because the dividend is not paid on the basis of individual performance. It is paid to all the workers of the enterprise at a pre-determined rate.  It does not make any difference between efficient and inefficient workers. 


(3) Delay in Remuneration:

Another point of criticism of the profit-sharing scheme is that the dividend is paid only at the end of the year the workers do not like to wait so long. 


(4) Major Share in Profits goes to the Employers:

An important disadvantage of this scheme is that the workers get only a little share of the profits and the major share of profits goes to the employers while the part played, by both of them in earning these profits is equal. 


(5) Possibility of Manipulation in Accounts:

The employers may manipulate the accounts in a manner that the profits as disclosed by the books of accounts are less than actual profits. By doing so, the employers kill the interest of workers.


(6) The scheme is not compulsory:

The scheme of profit sharing is not compulsory. Adoption of this scheme depends exclusively upon the decision of employers.


(7) Against the Grace and Dignity of Workers:

The workers feel that this scheme is against their grace and dignity. The employers feel that the dividend paid by them to the workers is their mercy and not the right of the workers.


(8) Opposition by Labour Unions:

Labour unions generally do not accept this scheme on the ground that it causes dis-unity among the workers and that the management also cheats the workers by calculating wrong profits.


(9) Opposition by Employers:

Even the employers oppose this scheme on the ground that they have to share the profits of the enterprise with the workers while the profit is the reward for the risk only which is born by them alone. They further argue that the workers, share in the profits only and not in the losses.


(10) Unscientific Base:

The basis of the allocation of Profits is not scientific. Profits are allocated on an arbitrary basis, generally a percentage of the pay of the employees.



RELATED TOPIC






Tags