The Benefits of an Entreprise Offering Profit Sharing

Another group continuum represents incentive plans that by cooperation of all organizational members create a culture of ownership. These common incentives are profit sharing, and stock option and employee stock ownership plans (ESOPs).
According to Coates (1991) “profit sharing plans are defined as an arrangement in which companies make contribution, based on profits, to individual employee account” (p. 19). It can be distributed in form of cash (added to paycheck) or in a deferred form, where employer contributes to a retirement trust (Kruse, 1993, p. 5).
One of the advantages is that employees, by increasing their productivity and quality of work, assist with business growth and ultimately help themselves by gaining higher premiums (Coates, 1991). Kruse (1993) wrote, “profit sharing can motivate employees to work harder for increased profits, primarily through increase productivity,” and also “can aid economic stability and decrease unemployment” (p.2).
Despite the distinctions, profit sharing is prone to weaknesses and ¬criticism. Coates (1991) notes that one of the disadvantages is problem finding a correlation between increased or decreased productivity and profit sharing gains (p. 20). Not only the top management may have a hard time measuring it but also an average worker may have a difficulty relating his work to his profit share earnings (Noe, Hollenback, Gerhart, Wright, p.558). Additionally, during the economic downturn, employees may react negatively to the lack of share in profits (Coates, 1991).
Another disadvantage mentioned by Coates (1991) is the “free rider” problem, where “employee who ignores his or her responsibility, believe that other workers will pick up the slack,” and despite minimal work effort, ...

... middle of paper ... The Employee Ownership 100: America's Largest Majority Employee-Owned Companies. Retrieved April 26, 2014 from
Noe, R.A., Hollenback, J.R., Gerhart, B., (2010). Human Resource Management: Gaining A Competitive Advantage. New York, NY. The McGraw-Hill. (p. 555-561).
Shanney-Saborsky, R. (2000, January - February). ESPOs and the Employee Ownership Culture: Balancing Compensation and Equity Issues. Compensation and Benefits Review 32. No. 1. (p. 72-80). Retrieved April 26, 2014 from
Weitzman M., Kruse D.L. (1990). Profit Sharing and Productivity. Paying for Productivity. E.D. A.S. Blinder. Washington, DC. Brookings Institution. (p 109-110). Retrieved April 22, 2014 from

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