Profit sharing, when used as a special term, refers to various incentive plans introduced by businesses that provide direct or indirect payments to employees that depend on company's profitability in addition to employees' regular salary and bonuses. In publicly traded companies these plans typically amount to allocation of shares to employees.
The profit sharing plans are based on predetermined economic sharing rules that define the split of gains between the company as a principal and the employee as an agent. For example, suppose the profits are x, which might be a random variable. Before knowing the profits, the principal and agent might agree on a sharing rule s(x). Here, the agent will receive s(x) and the principal will receive the residual gain x-s(x).
Read more about Profit Sharing: USA, Gainsharing
Famous quotes containing the words profit and/or sharing:
“You know how to vanquish, Hannibal, but you do not know how to profit from victory.”
—Titus Livius (Livy)
“I go for all sharing the privileges of the government, who assist in bearing its burthens.”
—Abraham Lincoln (1809–1865)