Profit Sharing
Profit sharing is a plan whereby employers undertake to pay a specific portion of net profits to their workers on compliance along certain service conditions & qualifications. The cause of introducing profit sharing plan has been chiefly to strengthen the loyalty of workers to the firm by offering them an annual bonus (over & above normal wages) provided they are on the service rolls of the firm for a particular period. The share of profit of the employee may be given in cash or in the form of shares in the company. These shares are known as bonus shares.
Merits
1. The idea of sharing the profits motivates the management and the worker to be devoted, sincere and loyal to the firm.
2. It helps in supplementing the salary of workers and makes able them to lead a rich life.
3. It is likely to induce inspiration in the workers and other staff for faster and better work so that gain of the firm are enlarged which in turn raise the share of worker therein.
4. Workers do not need close supervision, as they are self-inspired to put in additional labour for the prosperity of the firm.
5. It attracts brilliant people to join the ranks of a firm having a view to share the profits.
Demerits
1. In practice, Profits sharing scheme is a fair-weather plan. Workers might get nothing if the business does not succeed.
2. Management might dress up profit figures & deprive the workers of their legal share it profits.
3. Workers tend to build up loyalty toward firm discounting their loyalty toward trade unions, therefore impairing the solidarity of trade unions.
4. Fixation of worker's share in the gain of firm may prove to be a bone of contention in the long run.