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Profit-sharing remuneration

Employee profit-sharing remuneration gives employees a defined share of a specified profit measure under an agreed scheme. It can encourage interest in overall results but the link between one employee’s effort and the outcome may be weak, especially in a large business. Define eligible profit, period, allocation and adjustments and consider accounting manipulation and factors outside employees’ control. It is distinct from a partner’s ownership appropriation or an ordinary shareholder dividend.

Worked example

A scheme distributes 5% of eligible annual profit of $200,000, creating a $10,000 pool shared using the stated employee basis.

Common mistake

Do not treat a profit-sharing payment as an ownership dividend merely because the formula refers to profit.

Where it appears in your exams

QualificationExamRelationshipPeriod
ACCA APM Direct September 2026–June 2027
ACCA MA Supporting September 2026–June 2027
FIA FMA Supporting September 2026–June 2027