What does profit sharing entail?

Profit sharing is a compensation strategy that involves distributing a portion of an organization's profits to its employees. This approach aligns employees' interests with the financial success of the organization, as their compensation is directly tied to the company's overall performance. By linking rewards to profits, profit sharing encourages employees to contribute to the organization's success, fostering a sense of ownership and investment in the company's future.

The focus on overall organizational performance distinguishes profit sharing from bonuses based on specific metrics such as individual or store sales. While those bonuses may reward short-term achievements, profit sharing takes a broader view, motivating employees to work collaboratively for the long-term sustainability and health of the company. Additionally, profit sharing is distinct from fixed payments to employees or annual salary increases based on market rates, which do not fluctuate based on performance outcomes.