In a profit-sharing plan, an employee receives a percentage of a company’s profits, either in cash or company stock, based on the company’s quarterly or annual earnings and the amount is determined by the employer. Quarterly profit-sharing plans can be slightly more cumbersome, but they incentivize high-performers in risky businesses.
The goal is to reward employees for their contribution to the business’ success and align their financial well-being with that of the company. Both pensions and profit-sharing plans achieve this goal. This is a great way for owners to share business profits with the rest of the company and compensate them in a tax-friendly way.