Profit sharing is scheme whereby employers undertake to pay a particular portion of net profit to their employees on compliance with certain service conditions and qualifications. The purpose of introducing profit sharing schemes has been mainly to strengthen the loyalty of employees to the firm by offering them an annual bonus (over and above normal wages) provided they are on the service rolls of the firm for a definite period. The share of profit of the worker may be given in cash or in the form of shares in the company. These shears are called bonus shares.
Merits of PSSOP
1. It is likely to induce motivation in the workers and other staff for quicker and better work so that profits of the firm are increased which in turn increases the share of workers therein.
2. It helps in supplementing the remuneration of workers and enables them to lead a rich life.
3. The idea of sharing the profits inspires the management and the workers to be sincere, devoted and loyal to the firm.
4. It attracts talented people to join the ranks of a firm with a view to shear the profits.
5. Workers do not require close supervision, as they are self-motivated to put in extra labor for the prosperity of the firm.
Demerits of PSSOP
1. Workers tend to develop loyalty toward firm discounting their loyalty toward trade unions, thus impairing the solidarity of trade unions.
2. Profit sharing scheme is, in practice, a fair weather plan. Workers may get nothing if the business does not succeed.
3. Management may dress up profit figures and deprive the workers of their legitimate shear in profits.
4. Fixation of workers share in the profits of firm may prove to be a bone of contention in the long run.
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