These schemes are not methods of wage payment. These are introduced to provide an opportunity to the workers to share in the prosperity of a concern.
Such schemes ensure that the workers are not only the wage earners but also they are the partners of the undertaking. Under profit sharing scheme, the employees are entitled to share the profits at an agreed proportion in addition to wages.
The scheme recognises the principle that every employee contributes something towards profit and as such he should be paid a percentage thereof. The scheme is introduced with the expectation that the employees will be more co-operative when they get a share in the profit of the undertaking.
The share of profit of the employee may be given in cash or in the font of share in the company. When share of profit is given in the form of share, it is called ‘co-partnership’.
This scheme is also referred to as ‘co-ownership’. Employees a given shares in the capital of the business and as a result of which they receive profit accruing thereon. These shares may or may not carry the voting rights. Sometimes employees are free to deal with these shares in a normal way and sometimes a few restrictions may be imposed on these shares.
Important advantages and disadvantages of the scheme are:
(i) The schemes apply to all employees irrespective of efficiency and their increase employee morale and thereby reduce labour turnover.
(ii) Such schemes induce the employees to work hard and increase their efficiency resulting in increased productivity.
(iii) The schemes create a sense of belongingness to the enterprise which leads to careful handling of materials and machinery.
(i) Since the share of profit is given to all the employees, the inefficient employees share equally with the efficient employees.
(ii) The share of the profit to the employees is given once in a year. Hence they may lose interest in it.
(iii) As the employees do not have any access to the accounts of the enterprise, they are in dark to ascertain their share in the profit. This may lead to confusion which may turn to strikes, lock-outs, etc.