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[Music] under profit-sharing plans company profits are shared with employees profit sharing plans are a group level incentive plan in which company profits are shared with employees procedurally profit sharing can be distributed to employees as cash or can be deferred under a deferred profit sharing plan the incentive money paid to an employee is put into a retirement account for the person the plan has a tax advantage because the income the employee earns is deferred until he or she retires and after people retire their earnings are generally lower so the income withdrawn from the retirement account is taxed at a lower rate there are several other advantages to profit sharing plans first profits are obviously an important component to the success of a company thus implementing these plans helps keeps employees focused on activities that are truly important moreover by focusing employees efforts on the performance of the entire company rather than solely on their own performance profit sharing encourages collaboration and teamwork among employees a final benefit is that profit sharing allows employees to be paid only when the company is doing well a mechanism that helps maintain control over labor costs in some instances employees may be doing exceptionally well in their jobs and helping their co-workers excel but their company's overall performance goal may not being realized the point here is that the profitability of a company is influenced by a multitude of factors many of which are outside the control of employees with profit sharing plans it's conceivable that employees may not be rewarded by their incentive plans even though they've done everything they can to help their company succeed a second potential problem with profit sharing plans is that employees might not see the fruits of their labor for a long time it may take a while for the efforts of employees to translate into company profits if this occurs the gap between when the performance occurs when the reward is realized might be significant thereby diminishing the motivating impact of these plans [Music]