PROFIT SHARING

system by which employees are paid a share of the profits of the business enterprise in which they are employed, in accordance with a scheme defined in advance. Such payments, which may vary according to salary or wage, are distinct from and additional to regular earnings. Profit-sharing plans were probably first developed in France before the middle of the 19th century as a means of increasing worker incentive and eliminating the antagonism between workers and owners. The scheme was adopted later in a number of other countries and currently exists to varying degrees throughout much of western Europe, the United States, and parts of Latin America. Profit shares may be distributed on a current or deferred basis or by some combination of the two. Under current distribution, profits are paid out to employees immediately in the form of cash or company stock. Profit sharing in the form of ownership shares in the firm has in a few cases also involved participation by employees in the firm's management. In deferred-payment plans, profit shares may be paid into a trust fund from which employees can draw annuities in later years. Some employers find deferred profit sharing a favourable substitute for pension plans because the employer contribution is not fixed but varies with profits.