Identify and briefly comment on the key issues in designing profit-sharing plans.

Profit-sharing plans have the following design issues: the form of bonus payout determination,the formula for bonus determination,employee eligibility,the basis for allocating the profit-sharing bonus across employees,payout frequency,and communicating financial results and profit sharing.The following bonus payout options are available: deferred,cash,stock,or a combination of these.For motivational reasons,fixed formula plans are recommended over using a discretionary approach to bonus determination.In most cases,there is a time period for employee eligibility,and the more inclusive the better,although casual,contract,and unionized employees are often excluded.Allocation of profit-sharing bonuses is based on salary,seniority,performance,a combination of these,or equal distribution.Payouts should occur no more often than quarterly,and an annual basis is probably best.Most firms distribute financial statements and profit-sharing newsletters on a regular basis.