Profit sharing is investing in your bottom line

A well-motivated and focused workforce is the key to achieving sustained improvements in profitability. And one of the best ways to motivate your workforce is to involve them in increasing profits and sharing in the results.

Improving the bottom line

When carefully implemented, a profit sharing scheme can help improve the bottom line in a number of ways by:

• Creating a profit culture throughout the organisation
• Keeping employees focused on constantly improving productivity
• Helping to reduce waste of materials and inefficient use of time
• Improving teamwork
• Helping to recruit quality employees
• Providing the motivation for key employees to stay

Downside?

A possible downside for owners and directors is that employees who participate in profit-sharing schemes tend to monitor more closely expenditure on their benefits, bonuses, and other perks, which they perceive to be reducing the size of the profit pie, and therefore of their individual slice. There also tends to be more pressure from employees to be able to influence decisions that affect the overall profitability of the business.

In an organisation that is truly committed to improving profitability, however, such increased interest from employees will not be a problem; rather part of the solution. If everyone from management down is rewarded strictly on the basis of his or her contribution to profitability, and if there are effective channels of communication through which employees can submit profit-improvement ideas, there should be no conflict or tension involved in introducing a profit sharing scheme.

Factors to consider

Before introducing such a scheme there are a number of factors to consider:

• Who will be eligible to participate?
• Will there be a probation period for new employees?
• How much profit is available for sharing?
• How will it be allocated?

The answers to these questions depend upon a careful analysis of the business's profit history, the extent to which it is capital intensive or labour intensive, and so on.

If you would like help in determining whether a profit sharing scheme would benefit your business, and if so how it should be structured and implemented, we would be glad to assist.

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2. RBI allowed inclusion of technical write-offs while calculating provision coverage ratio
3. Government may wind up MRTP Commission before 2011
4. Central excise refund is taxable and distinct from profit derived from industrial activity
5. Air passengers carrying large amounts of money can be detained by authorities for questioning
6. Satyam ex-directors being prosecuted on issue of head count
7. IT department raid on CA unearthed money laundering racket running into over Rs 1,000 crore
8. MVAT Circular on periodicity or returns and Penalty
9. MVAT circular on Filing of Refund Application in Form – 501 electronically
10. Unnecessary litigation clogging the wheels of justice
11. RBI circular on Capital Adequacy – Risk weightage on Lending through Collateralized Borrowing and Lending Obligation (CBLO)
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13. Enforcement Directorate conducted searches at the premises of realtor Emmar MGF
14. FM likely to retain EET (exempt-exempt-tax) principle proposed in the Direct Tax Code

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9. Maharashtra taxman wants GST to be implemented from April 2011 instead of April 2010
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12. Government sanctioned 116 posts for the Central Information Commission
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22. In a effort to maximise revenue CBEC ordered to reopen cases where Tax demand stayed
23. Proposal for Mandatory PF to workers with a salary of up to Rs 15,000 a month instead of Rs 6,500 at present

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2. Royalty paid for certain rights, which are not in the nature of “make available,” can be charged to revenue account
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14. RBI circular on Auction of Government of India Dated Securities

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3. AAR on Payment for end to end international long distance telecom services not taxable
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6. ICSI submits recommendations to Shri Salman Khurshid to strengthen corporate governance framework
7. Central Goods and Service Tax may be applicable on Businesses with more than Rs 10 lakh turnover
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9. HC will hear the issue of tax on stake sale in Idea Cellular by foreign companies
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11. India can surpass China
12. SEBI ask bourses to preserve records till the trial or investigation proceedings concludes
13. Preservation of records – MRD/DoP/SE/Cir- 21 /2009 – SEBI
14. Preservation of records – MRD/DoP/DEP/Cir- 20 /2009 – SEBI
15. RBI circular on AIFIs – Provisioning Coverage for Advances
16. Amendments in notification No. 50/2003-Central Excise, dated the 10th June, 2003
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