Profit sharing

Profit sharing is a form of earnings. Instead of or in addition to a fixed salary a worker receives a share of the net profit of the company.

History

There can be various causes and aims to profit sharing plans differ:

The oldest known has become such remuneration in Germany was introduced in 1847 by the Mecklenburg landowner, agricultural economist and social reformer Johann Heinrich von Thünen. She stayed for almost 50 years of success .. Its introduction combines modern economic studies v. Thünen with outmoded patriarchalischerer responsibility for the development of suitable welfare facilities " Gutsfamilie ".

The profit sharing as an incentive to effective and high-quality work and loyalty to the company at the company reflects the participation model of the Berlin entrepreneur Otto Lilienthal. He led in March 1890 a 25-percent profit sharing for all employees.

In the early 20th century, the profit sharing was mainly bezw an effective means of preservation. Restoration of social peace between employers and workers and to improve the economic situation of the latter described. Henri Fayol writes in his book " General and Industrial Management" (1929 ) that the principle of profit-sharing is a possible approach to the reconciliation of the conflict between labor and capital, but recognizes that to date, no ideal vorläge practical implementation. He further notes that the principle can not be applied to companies that do not share the profit (government, non-profit or scientific societies ) or to enterprises that operate at a loss.

Other well-known companies with profit sharing are the Carl- Zeiss -Stiftung or the Telegraph Construction of Siemens & Halske. The Berlin timber manufacturer Heinrich Freese has described the introduction to his company later in detail in several publications.

As an incentive system is close to the profit-sharing rather free economic structures and was replaced with the introduction of social legislation and trade unions as bargaining partners by other incentive schemes.

Today's meaning

Profit sharing plans today have little significance compared to performance pay, target bonuses and other incentive schemes. This employee profit sharing are not in a fixed proportion of the profit of the whole company or only apply to a selected group of employees (bonuses, royalties ) and offer the entrepreneur a greater scope. Spreads are also corporate investments in the form of employee equity participation, such as employee shares or participation rights.

A "real" profit sharing occurs when salary components depend (regardless of individual performance ) from the profit of the company. For a fixed wage agreement, the companies bear the economic risk in a profit-sharing a part of this risk passes to the workers over. Is risk-averse and not economically bear the risk in the situation of workers, he will prefer a fixed wage. But above all, the knowledge of (possible) future profits is and the effects on these unevenly distributed. While the company has an extensive knowledge and makes the decisions about products, production and market strategies, the employee has this knowledge not to the same extent. The company will therefore then suggest a high profit-sharing, when it expects to low profits, the employee will be close reversed from the offer of profit-sharing that the profit outlook is bad.

Tax Treatment

If the recipient of the employee profit sharing granted to the company, the profit sharing part of the income from employed work and is subject to wage tax. If the recipient is an entrepreneur, profit sharing is one of the operating revenue, is possibly one of the sales tax and business income or income from self-employment.