PROFIT SHARING

&

GAIN SHARING PLAN

PRESENTED BYTania AroraYogesh PayengMd Sajid AlamMd Ahsanul Haque KhanMadhuparna DattaPGDM 1

PROFIT SHARING

A profit sharing plan is an organization is a wide incentive program for employees.

Distributes compensation base on some established formula.

It designed around a company’s profitability.

Types of Profit sharing plans

Straight profit

sharing plans

Hurdle rate profit

sharing plans

Goal driven profit

sharing plans

Advantages and Disadvantages of Profit Sharing Plans

• Funded from profits , so there is low risk for the company.

• Can be used to supplement company retirement contributions.

• Can be linked to company objectives other than profits.

• Easy to integrate with suggestions plans

• reward and recognition systems.

ADVANTAGES

• Profit may be too broad an objective to really focus employees on behaviors that need to be changed for the organization’s success.

• Can be demotivating if there is no profit to share.

DISADVANTAGES

EXAMPLE (PROFIT SHARING)

Chinese telecom giant Huawei, a private company owned by its employees

employs about 170,000 staff, including more than 40,000 non-Chinese

only Chinese company that receives more sales revenue from markets outside China

Employee Stock Ownership Plan (ESOP)

Zhengfei (owner) himself holds only 1.4% of the company’s total share capital, with

82,471 employees holding the rest

total net profit that was earned over the last twenty years is considerably smaller than the

total net profit that was paid out to its employees.

sum of employees’ salaries, bonuses and dividends is 2.8 times the company’s annual net

profit

plans are to further increase the ratio to 3:1.

Gain sharing plan

Gain sharing measures are based on operational measures (productivity, spending, quality, customer service) which are more

controllable by employees rather than organization-wide profits.

Employees have an opportunity to earn a Gain sharing bonus generally on a monthly or quarterly basis.

The organization's actual performance is compared to baseline performance (often a historical standard) to determine the

amount of the gain.

The Gain sharing organization measures performance and through a pre-determined formula shares the savings with all

employees.

Principles for Gain sharing

Equity

Identity

Involvement

Commitment

ADVANTAGES

Helps companies achieve sustained improvement in key performance measures

Rewards only performance improvement.

Payouts are self-funded from savings generated by the plan.

Aligns employees to organization goals

Enhances employee focus and awareness.

Increases the feeling of ownership and accountability.

Enhances the level of involvement, teamwork and cooperation.

DISADVANTAGES

Measures are

narrower than

organization-wide

profit and therefore

gains may be paid

even though profits

may be down.

Requires a

participative

management

style

Employees

may question

or challenge

management

decisions that

may adversely

impact a gain.

Paid on the

basis of group

performance

rather than

individual

merit.

1 432

EXAMPLE (GAIN SHARING)

1950-Employee plant in Mount Vernon, Illinois

where the plan has generated $30 million in savings over a five-year period

$20 million of which was paid out to workers in the form of bonuses, while the company profited by $10 million

Timken's Faircrest Steel Plant

where gain sharing targeted plant wide improvements and replaced old incentive systems that paid only for individual piece-work operations.

General Tire's

TANDEHILL- GAIN SHARING PROGRAMME

Tandehill defines gainsharing as a “commitment to employee involvement

that ties additional pay to gains in workforce performance.

• Gainsharing feasibility study

• Gainsharing programme design

• Implentation and employee

education

• Continuous improvement

TANDEHILL DEVELOP A GAIN

SHARING PROGRAMME-

IMPLEMENTATION OF GAIN SHARING

At a foundry- reduces absenteeism , production errors and overtime.

At a telecommunication company- help the organization to “win back employees”

At a pork processing plant – help improve employee retention rates.

At a hospital – helps to motivate employee in patient satisfaction

At a major retailer- focus employees on increasing customers satisfaction .

Benefits