Profit-sharing plans are plans in which all or most employees receive a share of the firm’s annual profits. Research on such plans’ effectiveness is sketchy. One study concludes that there is ample evidence that profit-sharing plans boost productivity and morale, but that their effect on profits is insignificant, once you factor in the costs of the plans’ payouts.
There are several types of profit-sharing plans. With current profit-sharing or cash plans, employees share in a portion of the employer’s profits quarterly or annually.