when employees share in the company's profits
Profit sharing is a form of corporate organization in which portions of the corporate profits (but not necessarily shares of corporate equity) are distributed to the workers employed by the corporation.
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- ... if the only argument for this economic system were the demonstration of its justice, it might well despair of gaining ground. Men's consciences are not easily enlisted against their interests, and few would be induced to share profits, which they have considered their peculiar possession, with workmen who could claim them only as a moral right. But profit-sharing forwards the interests of the employer no less than those of the employed. It offers a keen incentive to the ambition, fidelity, and industry of the laborer, and thus actually creates an entirely new source of profit.
- Profit-sharing, in the loose sense, must be of untold antiquity; the first great example of profit-sharing in the strict sense is that of the Parisian house-painter, Edme-Jean Leclaire, “ The Father of Profit-Sharing.” In 1842 he was employing 300 men on day wages. By greater zeal and intelligence and less waste, not necessarily by harder work, he reckoned they could save £3000 a year; and he made it their interest to do so by arranging that they should receive the greater part of the saving themselves. This arrangement proved a very great success; the material gain to the men and the improvement in their morale were marked; and Leclaire, who began life with nothing and died worth £48,000, always maintained that, without the zeal drawn out in his men by profit-sharing, he never could have made so large a business or gained so much wealth.
- A direct allotment of a share of profits is one of the most ancient methods of rewarding labor. If not actually older than the wage system it was at least widely prevalent before money wages were commonly paid. In agriculture it is seen in the metayer system of continental Europe, to which "farming on shares" in New England corresponds. In the fishing industry, where the system seems to be peculiarly applicable, the pay of the crew is almost universally in proportion to the catch. On the economic and social effects of share farming the judgements of competent observers have differed widely. Adam Smith thought that it could never be the interest of meters to lay out any part of their own savings on the further improvement of the land ... Sismondi ... whose opportunities for observation were superior to those enjoyed by any other writer that has treated this subject, gives emphatic testimony in favor of the system, as conducive to prosperity, moral order, and content.