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Finance: What is a Profit-Sharing Plan? 3 Views
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A profit-sharing plan is when you share all your profits with Shmoop. No, really. Don't hit play. Just trust us and send us money.
- Social Studies / Finance
- Finance / Financial Responsibility
- College and Career / Personal Finance
- Life Skills / Personal Finance
- Finance / Finance Definitions
- Life Skills / Finance Definitions
- Finance / Personal Finance
- Courses / Finance Concepts
- Subjects / Finance and Economics
- Finance and Economics / Terms and Concepts
- Terms and Concepts / Accounting
- Terms and Concepts / Careers
- Terms and Concepts / Company Management
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- Terms and Concepts / Tax
- Terms and Concepts / Trusts and Estates
Transcript
- 00:00
Finance allah shmoop what is a profit sharing plan Hey
- 00:07
all you employees you gets keep thirty percent of this
- 00:11
company's profits okay that's a profit sharing plan and in
- 00:14
general they're really good to have in place Why Well
- 00:17
because when employees are financially incentivized to act like owners
Full Transcript
- 00:21
or co owners companies just generally do a whole lot
- 00:24
better Welcome to the advent of the profit sharing plan
- 00:28
Directly sharing in profits is one way employees get rewarded
- 00:31
when their company does well and punished when it doesn't
- 00:34
But some companies pay their employees in stock instead instead
- 00:37
of cash because in a given situation where a company
- 00:40
trades and on twenty times earnings taking say fifteen percent
- 00:44
of those earnings out of the prophet bull and giving
- 00:46
them to employees well it essentially cost shareholders twenty times
- 00:50
that earnings number in the form of simply a lower
- 00:53
priced stock like if they were going to earn one
- 00:55
hundred million dollars in Instead they only earned eighty five
- 00:58
while twenty times the hundred million mornings is two billion
- 01:01
and twenty times the eighty five million is one point
- 01:03
Seven there's three hundred million dollars of market cap gone
- 01:07
Yeah that's not such a good idea so paying employees
- 01:09
with stock has become a whole lot more of a
- 01:11
thing these days Then not the challenge and allocating profits
- 01:14
among employees of course lives inside of the concept of
- 01:17
attribution meaning who was responsible for actually producing profits in
- 01:23
this area or that who was naughty you know and
- 01:26
who was nice And what if a company has multiple
- 01:28
divisions where it's senior manager did incredible work during a
- 01:32
time where the jet engine division usually loses money such
- 01:36
that the manager heroically helped the company's division toe on
- 01:40
ly lose three percent that year Well compare this manager
- 01:43
to the manager of the insurance division which in a
- 01:46
normalized competitive world should have made twenty percent profit margins
- 01:50
this year but only made eighteen Well who did better
- 01:53
The insurance guy or the jet engine gal Well who
- 01:56
gets more profit And how is the profit allocated among
- 01:59
the most senior managers who actually can directly affect profits
- 02:03
versus the junior hardworking people who are really projectiles of
- 02:08
whatever their senior managers tell them to do so Yeah
- 02:11
it's Not an easy process This whole profit sharing thing
- 02:14
And in practise allocating profits among managers inside of divisions
- 02:19
in companies that actually have profit sharing plans is usually
- 02:22
done in such a way as to have the quote
- 02:24
Lowest rung on the corporate ladder unquote Be directly involved
- 02:28
in allocating those profits so that fewer employees feel like
- 02:32
they're under appreciated when the final prophet allocations get made
- 02:36
And so that you know the janitor who spent all
- 02:39
year cleaning out the urinals doesn't feel you know totally 00:02:42.808 --> [endTime] whizzed upon by the senior management there Yeah
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