Pros and cons of profit sharing incentive plan

Pros and cons of profit sharing incentive plan

Posted: cahek Date of post: 08.07.2017

Bonus or incentive pay is compensation over and above base salary and is a reward to employees or to a team for achieving certain goals. Bonus pay can be used to improve morale, motivation, and productivity. Not all bonus plans achieve what they set out to accomplish.

For example, you will want your plan for your sales employees who work with customers and are responsible for company earnings targets to promote high levels of performance as well as encourage ethical behavior.

pros and cons of profit sharing incentive plan

Though the terms commission and bonus are often used interchangeably, there is a difference. Commission is a percentage of a sale. Commissions are often used for sales scouts or business developers.

Payouts are typically monthly. Bonus is an incentive paid for meeting performance criteria against a specific goal.

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There are several types of bonus programs. Some plans give employees a share of the company profits regardless of individual or team performance. Other programs give incentives to individuals or teams to perform at or above certain thresholds. Below are some of the common types of bonus plans. Profit Sharing is a basic type of bonus program. A company sets aside a predetermined amount for a bonus dependent on company profits.

Gain Sharing bonus programs are most common in manufacturing and are designed to reward productivity and improved product quality. Spot Bonus Awards reward employees on the spot for achievements that deserve special recognition.

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You can get these for just being extra helpful. Sign-On Bonuses are commonly used for new employees joining the company and often serve to add compensation for the first year without increasing the base salary level. Mission, Task or Milestone Bonus are given as a reward for special achievements and are usually offered sparingly.

Referral Bonuses are paid to employees who refer friends and former coworkers for open positions.

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The referral bonus is typically paid only if and when the referral is hired. This practice is not a true bonus since no performance is required to receive it.

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Sales Commissions are awarded to salespeople for selling. Typically these awards are paid out as a percentage of sales volume. Bonuses can be discretionary or non-discretionary.

The most common example of a discretionary bonus is the holiday gift, such as the classic holiday turkey or more common today, the gift card.

In order for the bonus to qualify as discretionary, the employer must maintain complete discretion over whether any payments will be made and, what amount, if any, will be paid to each employee. Discretionary bonuses cannot be tied to performance or goals of any kind and should be announced just prior to payment. Also, if a bonus qualifies as discretionary, it does not have to be included in the overtime calculation for non-exempt employees.

When a non-discretionary bonus is paid to a non-exempt employee, under the Fair Labor Standards Act FLSA , the employer must generally count the bonus pay in the employee hourly rate when calculating overtime pay. Please refer to federal and state wage and hour regulations for detailed information regarding what can qualify as discretionary versus non-discretionary.

Additionaly, employers should carefully craft and implement bonus plans with the assistance of counsel and be certain to clearly communicate the bonus plans to employees. Bonus plans are also a key part of your compensation package and are important for maintaining a competitive advantage and being able to recruit and retain key employees.

WageWatch also offers accurate, up-to-date benefit survey data, market compensation data and salary reports that will allow you to stay current with the times.

This information is highly beneficial in creating the best salary and benefits packages that meet or rival the industry standards. This entry was posted on Wednesday, August 21st, at 3: You can follow any responses to this entry through the RSS 2. Both comments and pings are currently closed. Please upgrade your browser for a better browsing experience.

pros and cons of profit sharing incentive plan

Here are several alternatives: Mozilla Firefox Internet Explorer Apple Safari. Bonus and Incentive Plans Bonus or incentive pay is compensation over and above base salary and is a reward to employees or to a team for achieving certain goals.

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