Definition
A mechanism that lets employees share in the company's actual business results according to a pre-stated basis and allocation method.
In detail
Profit sharing links employee rewards to business results. Before implementation, clarify the profit measurement basis, participation scope, distribution method, timing, and exception handling, and make the results understandable to employees. It differs from individual manager performance bonuses and from commissions based on savings claimed for a single improvement. The percentages in books are specific company practices and cannot be default parameters for all companies; the company's HR and Finance are responsible for the plan and payouts.
Example in practice
The company agrees to disclose profit-sharing results quarterly, along with explanations of financial changes, customer demand, and improvement priorities for the next quarter. Employees can verify the agreed measurement basis against actual distributions. The company uses its own plan rather than copying another company's percentages, and does not calculate bonuses directly from completing a single improvement activity.