The differrence between profit sharing & bonus
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Overview of profit sharing & bonus
There are quite a few differences and similarities between profit sharing and bonus. To help you make a choice, we've listed the most important points below.
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What does it mean?
PARs are similar to SARs, but instead of the increase in value of a share, the employee receives a cash amount linked to the company's profit.
A bonus is an agreement for compensation when certain targets are achieved.
How does it work financially for employees?
Employees receive a cash amount linked to the company's profit.
Employer and employee agree on goals with corresponding compensation. If the goals are achieved, the compensation is paid.
What about employee engagement?
Employees do not have a say in the company, so employee involvement is somewhat lower than with shares or share certificates.
The bonus is not tied to the company's increase in value, so the employee does not directly benefit from potential increases in value. Also, the employee does not get voting rights.
What about tax implications for the employee?
The profit made by an employee is taxed as income.
A bonus is taxed as income. The amount of tax depends on the employee's income.
What are the costs?
This is just a contract.
A bonus is just a contract. There are no costs outside the bonus plan.
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