Government and companies have started the encouragement of profit sharing schemes. The government has felt that these schemes would encourage employees to stay in the company for longer period. Pendleton has stated the advantage that it has in cost in the form of flexibility. There would be fewer chances of trade unions flexing its muscles.
A common method is to calculate the bonus at the end of financial year and would help employee meet insurance liability and payee. The bonus level can be fixed or variable. Commercial sectors in USA follow profit or gain sharing model. This model is also followed by nonprofit organizations in America. The scheme has become popular between 87 to 2000.there are approximately many schemes higher than 13000 in 96 that had covered more than 3 million employees, and there were tax saving benefits also.
Shares are used as a profit sharing method and also as tax saving method. This share would be given to others including directors. Shares can be purchased at a current price and hope of future rise can happen. Government schemes are there in which a value of 5 pounds and 250 pounds are set aside as share. These are accumulated as funds, and from 2001 onwards Inland Revenue share incentive plans are there. These schemes help employees avoid tax and insurance savings.
Employees, when they are given shares as a benefit, can sell those shares after three years and need not pay tax. There are options of allowing a free purchase of shares to employees present in scheme.
Employees would feel a pressure that their share value may climb up and down. There may be instances when a company would not have the finance to pay profit to employees. Profit incentives system or rate would vary from year to year.
There is marked difference between PRP and profit sharing. Profit sharing is not related to individual performance, and overall performance would benefit the employee. There are always many factors that influence profit.