Under profit sharing, payments are a percentage of the organization's profit and do not become a part of the employee's base salary. Organizations use profit sharing for a number of reasons. It may encourage employees to think more like owners, taking a broad view of what they need to do in order to make the organization more effective. They are more likely to cooperate and less likely to focus on narrow self interest. Also, profit sharing has the practical advantage of costing less when the organization is experiencing financial difficulties. If the organization has little or no profits, this incentive pay is small or nonexistent, so employers may not need to rely as much on layoffs to reduce costs.
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