Profit sharing is an organizational incentive plan whereby companies distribute a portion of their profits to their employees in addition to prevailing wages. Profit sharing can generate benefits to the company by fostering greater employee cooperation, reducing labor turnover, raising productivity, cutting costs, and providing retirement security. Profit sharing gives employees a direct stake in the profitability of a company, creating an atmosphere in which employees want the business to succeed as much as management does. The annual U.S. Chamber of Commerce Employee Benefits Survey shows that approximately 19 to 23 percent of U.S. companies have offered some form of profit sharing since 1963. According to the Profit Sharing/401(k) Council of America, 700,000 American businesses offered defined contribution plans (including profit sharing and 401(k) plans) to their employees in 2003. These plans covered 62.5 million American workers and contained $2.4 trillion in assets.

History

Profit sharing was quite common in...