A profit sharing plan is an employee reward in which a portion of company profits is shared with all employees. There are two types: qualified and non-qualified. Qualified plans are subject to certain IRS requirements, whereas non-qualified plans provide greater flexibility. Payouts from profit-sharing plans may be made in cash and/or company stock. Alternatively they may be deferred to retirement. In a BLR webinar titled "Compensation 101: Essential Secrets and Strategies for HR Professionals," Paul R. Dorf talked about some of the characteristics of qualified versus non-qualified plans:
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- Subject to IRS regulations
- Most employees treated the same
- Enhances retirement
Non-Qualified
- Not subject to IRS regulations
- Can differentiate awards
- Paid out at year-end
Profit sharing can be a nice reward, but often do not motivate employees in the same way as a true incentive.
Paul Dorf is the Managing Director of Compensation Resources, Inc. (CRI). CRI (www.compensationresources.com) specializes in providing comprehensive Compensation and Human Resource consulting services. Dorf is responsible for directing consulting services in all areas of executive compensation, short and long term incentives, sales compensation, performance management programs, and salary admin programs.