Sample Company-Wide Profit Sharing Plan

Sample_Documents

DISCLAIMER: This is a sample template provided for informational purposes only. It does not constitute legal, tax, or financial advice. Organizations should consult their own legal and tax advisors and tailor this document to reflect their specific business needs, geographies, and applicable laws.

Document Header

Document Type	Company-Wide Profit Sharing Plan
Category	Variable Compensation
Company	<Company Name>
Plan Title	<Company Name> Profit Sharing Plan
Version	<Version Number>
Effective Date	<Effective Date: DD MMM YYYY>
Plan Year	<Plan Year Definition, for example: Fiscal Year ending 31 Dec>
Supersedes	<Prior Version and Date, if applicable>
Document Owner	<Total Rewards Leader Title>
Approved By	<Approver Title or Committee Name> on <Approval Date>
Review Cycle	Annual, or more frequently as required by law or business needs
Confidentiality	Internal Use Only

Purpose and Objectives

The purpose of the <Company Name> Profit Sharing Plan is to share a portion of company financial success with eligible employees in a consistent, transparent, and equitable manner. This plan is designed to:

• Align employees with company profitability and long-term fiscal health
• Encourage cross-functional collaboration and disciplined cost management
• Reward outcomes that reflect sustainable, compliant, and ethical business practices
• Support attraction, retention, and engagement through a compelling total rewards program
• Provide a clear and auditable framework for funding, allocation, and payout

Scope and Applicability

In Scope

• All regular employees of <Company Name> in <Country or Countries> who meet eligibility criteria defined in this document
• All wholly owned subsidiaries and business units unless explicitly excluded by local policy or law
• Profit sharing awards funded from company-level results and distributed based on the allocation methodology set forth here
• Global and local adaptations where required by law, documented in Local Addenda

Out of Scope

• Sales incentive compensation and commission plans
• Long-term incentives (e.g., equity awards, performance shares)
• Discretionary spot bonuses not tied to plan funding
• Contractors, agency workers, interns, and temporary staff unless specifically included by written exception
• Entities where <Company Name> does not have majority ownership or control

Applicability by Employment Type

• Full-time and part-time regular employees are eligible if they meet service and employment status criteria
• Union-represented employees are included only where collectively bargained and documented in a Memorandum of Agreement
• Employees covered by country-specific mandatory profit sharing regimes will receive the greater of the statutory benefit or the plan award, subject to local law and plan rules

Governance and Plan Authority

Plan Sponsor and Administrator

• Plan Sponsor: <Company Name> through <Compensation Committee or Executive Committee>
• Plan Administrator: <Total Rewards function>, in partnership with Finance, Legal, and HR Operations
• The Plan Administrator is responsible for interpretation, administration, and ensuring compliance with applicable laws

Right to Amend or Terminate

• <Company Name> reserves the right to amend, suspend, or terminate this plan at any time, with or without notice, subject to applicable laws and collective bargaining obligations
• No changes will apply retroactively to reduce an award after it is both determined and communicated as final by the Plan Administrator, except to correct errors or comply with law

No Contract of Employment

• Participation in this plan does not alter the at-will employment relationship where applicable, nor does it guarantee employment for any period
• Awards are not guaranteed and are contingent on plan funding, eligibility, and compliance with plan terms

Severability and Interpretations

• If any provision is deemed invalid or unenforceable, the remainder of the plan remains in full force
• The Plan Administrator has final authority for plan interpretation and resolution of disputes, subject to applicable law

Plan Year, Measurement Period, and Effective Dates

Plan Year

• The plan year is <Plan Year Definition, e.g., 1 January through 31 December>
• Results are measured on a company-wide basis unless a Local Addendum specifies an alternative

Effective Dates

• Effective Date: <Effective Date>
• First Payout under this version: <Date> for the <Plan Year> measurement period

Review and Update Cycle

• The plan is reviewed annually by Total Rewards and Finance, with changes recommended to the approving body ahead of the new plan year

Profit Measure and Funding Methodology

Profit Measure

• The plan uses Adjusted Operating Profit (AOP) as the primary performance metric, defined as Operating Profit prepared in accordance with <GAAP or IFRS>, adjusted for items outlined in Adjustments
• Alternative or supplementary metrics (e.g., Free Cash Flow) may be used by exception where approved and documented

Adjustments

• To ensure the plan rewards underlying business performance, the following may be excluded or adjusted:
  • Extraordinary, non-recurring items
  • Restructuring charges and acquisition-related costs
  • Impairments and gains or losses on asset disposals
  • Impacts of changes in accounting standards effective within the plan year
  • Foreign exchange volatility outside established policy bands
• All adjustments require Finance review and Plan Administrator approval, and must be applied consistently across participants

Funding Threshold and Pool Formula

• Funding is subject to achieving a minimum AOP threshold of <Percentage> of budgeted AOP
• Funding formula example:
  • If AOP is below <Threshold Percentage> of budget, no pool is funded
  • If AOP is at <Threshold Percentage> of budget, the pool funds at <Base Funding Percentage> of eligible earnings
  • Between threshold and target, funding scales linearly from <Base Funding Percentage> to <Target Funding Percentage> of eligible earnings
  • Above target, incremental funding up to a cap of <Maximum Funding Percentage> may apply
• Alternative formula example:
  • Pool equals <Percentage> of AOP dollars above a threshold of <Amount>, capped at <Amount or Percentage>

Caps and Guardrails

• Minimum company safety and compliance gate: funding reduces to zero if a material safety or compliance event occurs as defined by Legal
• Maximum pool cost cap: total pool may not exceed <Percentage> of total eligible base earnings without CEO and Board approval
• Negative discretion: the Plan Sponsor may reduce but not increase the calculated pool except as expressly authorized

Eligibility and Participation Rules

Eligible Employees

• Regular full-time and part-time employees of <Company Name> in <Country or Countries> who:
  • Are employed on the last day of the plan year
  • Have at least <Number> months of service by the last day of the plan year
  • Are not on a corrective action at the time of payout, unless permitted by local law or Local Addendum
• Eligibility is determined by HR Operations based on HRIS data and applicable Local Addenda

Ineligible Populations

• Contractors, agency workers, interns, temporary staff unless explicitly included in Local Addenda
• Employees participating in a separate profit sharing plan that replaces this plan for the same measurement period
• Employees who terminate for cause at any time during the plan year or prior to payout

Leaves of Absence and Status Changes

• Approved leaves of absence follow proration rules unless prohibited by local law
• Promotions, demotions, transfers, and changes in hours worked are subject to proration based on time in each status during the plan year

Rehires and Transfers

• Rehired employees accrue eligibility from rehire date unless rehire occurs within <Number> days of prior separation, in which case prior service may bridge per policy
• Transfers into or out of entities not covered by this plan trigger proration based on eligible periods

Proration and Special Circumstances

Proration Rules

• Awards are prorated based on eligible days or eligible earnings during the measurement period
• New hires: prorated from date of hire if before <Date> cutoff; hires on or after cutoff are ineligible for the plan year
• Part-time: prorated based on actual eligible earnings
• Leave of absence:
  • Paid leave: include eligible earnings paid during leave
  • Unpaid leave: exclude periods with no eligible earnings unless mandated by local law
• Status changes: allocate earnings to each status period; apply the applicable allocation factor for each period

Terminations and Retirement

• Voluntary resignation before payout date: ineligible unless required by local law or Local Addendum
• Involuntary termination not for cause due to redundancy or restructuring: prorated award at company discretion
• Termination for cause: ineligible
• Death or disability: prorated award payable to beneficiary or estate where permissible by law
• Retirement: prorated award for those meeting the definition of retirement under <Company Name> policy

Disciplinary and Compliance Matters

• The Plan Sponsor may reduce or eliminate awards for individuals or groups in cases of misconduct, material policy violations, or poor audit outcomes, consistent with local law and due process

Funding to Allocation Flow

Step 1: Determine Company Pool

1. Finance calculates AOP per plan definitions
2. Finance applies approved adjustments and confirms threshold achievement
3. Funding formula is applied to derive the gross company pool
4. Any required safety or compliance gates are evaluated
5. The Plan Administrator confirms final pool size and communicates to stakeholders

Step 2: Allocate Pool to Participant Groups

1. The approved pool is allocated to participant groups by <Business Unit or Global Job Level> per plan targets
2. Group allocation may consider relative headcount, eligible earnings, and critical skills mix
3. Allocation decisions are documented and retained for audit

Step 3: Calculate Individual Awards

1. Eligible earnings are extracted from payroll for each participant
2. Individual allocation is calculated per the participant allocation methodology
3. Rounding and caps are applied
4. Awards are reviewed by managers for data validation and approved by HR and Finance

Participant Allocation Methodology

Eligible Earnings Base

• Eligible earnings include regular base pay and eligible shift premiums paid during the plan year
• Excludes overtime, severance, sales commissions, equity income, and other non-eligible pay elements unless specified in Local Addenda
• Currency conversions for non-functional currency are handled at monthly average rates aligned to Finance policy

Allocation Formula Options

• Default method: Award equals Funded Percentage times individual eligible earnings
  • Example: If funded at 6 percent and eligible earnings are <Amount>, then award equals 0.06 times <Amount>
• Tiered method by job level:
  • <Job Level A> target: <Percentage> of eligible earnings
  • <Job Level B> target: <Percentage> of eligible earnings
  • <Job Level C> target: <Percentage> of eligible earnings
  • Funded percentage applies to each target based on company performance
• Hybrid method: Combine base formula with multipliers for critical roles or hard-to-fill skills up to a cap of <Percentage>

Individual Caps and Minimums

• Individual award cap: <Percentage> of eligible earnings, unless approved by <Approver Title>
• Minimum payout: awards below <Amount> are rounded up to <Amount> or not paid per local practice

Example Calculation

• Assumptions:
  • Budgeted AOP: <Amount>
  • Actual AOP: <Amount> equal to 105 percent of budget
  • Funding curve: 0 percent at 80 percent of budget, 5 percent at 100 percent, 8 percent at 110 percent, linear in between
  • Eligible earnings for Employee X: <Amount> in <Currency>
• Funding interpolation at 105 percent: 6.5 percent of eligible earnings
• Award for Employee X: 0.065 times <Amount> = <Amount> (rounded per rules)

Payment Logistics

Timing of Payout

• Target payout date is within <Number> days following the close of the plan year, subject to completion of the annual audit and approvals
• In the event of delayed financial close, payout may be deferred until results are finalized

Form of Payment

• Paid through payroll in <Currency> and subject to applicable tax withholdings and deductions
• Not pensionable unless required by law or specifically stated in Local Addenda
• Where permitted, an elective deferral to <Deferred Compensation Plan Name> may be available for eligible employees in <Country>

Taxes and Withholding

• Awards are considered supplemental wages and taxed in accordance with local tax regulations
• <Company Name> will withhold applicable taxes, social insurance, and other required deductions
• Employees are responsible for any additional tax liabilities arising from receipt of awards

Rounding and Corrections

• Awards are rounded to the nearest <Currency> <Unit, e.g., 1.00>
• Overpayments or underpayments will be corrected in the next payroll cycle or as soon as practicable

Local and Legal Considerations

Country-Specific Addenda

• Local Addenda are required for <Country> where labor laws, works council agreements, or tax rules necessitate deviations
• Any Local Addendum must be reviewed by Legal and approved by the Plan Administrator and local HR leader

Works Councils and Unions

• Where applicable, information and consultation obligations will be met prior to implementation or material changes
• Collective bargaining agreements prevail where they provide greater employee benefit or specific procedures

Clawback and Misconduct Provisions

• Awards are subject to clawback in cases of financial restatement due to misconduct or breach of company policy, subject to local law
• For executives, applicable clawback policies of <Company Name> and relevant regulatory bodies apply

Regulatory and Tax Compliance

• Compliance with <Country> tax, wage, and hour laws is mandatory
• For U.S. participants, awards are intended to comply with or be exempt from Section 409A; the plan will be interpreted accordingly

Roles and Responsibilities

Total Rewards

• Design and maintain plan policy, funding curves, and allocation methodologies
• Coordinate with Finance and Legal on definitions, adjustments, and governance
• Own communications strategy and materials in partnership with Corporate Communications

Finance

• Calculate AOP, validate adjustments, and compute funded pool
• Provide monthly and final reporting to inform accruals and forecasts
• Partner with Total Rewards to ensure affordability, caps, and compliance with budget

HR Operations and Payroll

• Maintain eligibility and earnings data, run calculation cycles, and process payouts
• Manage proration logic and quality assurance
• Ensure accurate tax treatment and timely payments

Legal and Compliance

• Review plan documents for legal sufficiency and local compliance
• Advise on works council and union obligations
• Maintain clawback and misconduct protocols

Business Leaders and People Managers

• Reinforce the plan’s objectives and responsible performance culture
• Validate team eligibility and data prior to payout
• Provide feedback to improve plan effectiveness

Employees

• Review plan communications and understand plan basics
• Verify personal information in HR systems for accuracy
• Raise questions through HR Support channels as needed

Internal Audit and Risk

• Periodically review plan processes and controls
• Validate adherence to approval thresholds and data quality standards

Data, Systems, and Controls

Data Sources

• HRIS for headcount, job level, and status changes
• Payroll for eligible earnings and currency data
• Finance systems for AOP and adjustments

Calculation Tools

• Standardized calculation workbook maintained by Total Rewards
• Controlled environment with versioning, locked formulas, and input validation
• Optional third-party administration by <Vendor Name> with documented service levels

Controls and Auditability

• Segregation of duties across data extraction, calculation, and approval
• Dual approval for pool funding and payout files by Total Rewards and Finance
• Retention of final calculations, approvals, and communications for <Number> years

Implementation Timeline and Milestones

Milestone	Owner	Target Date	Notes
Preliminary plan review and updates	Total Rewards, Finance, Legal	<Date>	Align changes with budget cycle
Works council or union consultation, if required	HR, Legal	<Date>	Per local law and agreements
Final approval by <Approver Title or Committee>	Plan Sponsor	<Date>	Prior to plan year start
Mid-year funding check-in	Finance	<Date>	Scenario planning and accruals
Year-end financial close and audit	Finance	<Date>	Confirm AOP and adjustments
Award calculation and approvals	Total Rewards, Payroll	<Date>	Data validation and QA
Payout processing	Payroll	<Date>	Supplemental payroll
Post-mortem and plan effectiveness review	Total Rewards, Business Leaders	<Date>	Capture feedback and improvements

Review and Approval Process

Annual Review

• Total Rewards leads an annual plan effectiveness review covering funding, competitiveness, and outcomes
• Proposed changes are drafted with Finance and Legal input and presented to the approving body

Approvals

1. Draft changes finalized by Total Rewards
2. Finance confirms affordability and accounting treatment
3. Legal confirms compliance and updates to Local Addenda
4. Plan Sponsor or Committee approves changes
5. Communications are scheduled and delivered to employees and managers

Document Management

• Version control is maintained within <Repository Name>
• All approvals and exhibits are archived for <Number> years

Accounting and Financial Reporting

Accruals and Forecasts

• Finance accrues expense throughout the year aligned with forecasted funding
• Accrual methodology and assumptions are documented and reviewed quarterly

Expense Classification

• Profit sharing expense is recorded in <Expense Account Codes>
• Employer payroll taxes and social insurance are accrued in accordance with local requirements

Restatements and Clawbacks

• If financial results are restated, awards may be recalculated and adjusted as permitted by law and policy

Risk Management

Key Risks and Mitigations

• Volatility risk: use thresholds, caps, and multi-metric checks where appropriate
• Data integrity risk: implement reconciliations and segregation of duties
• Compliance risk: maintain Local Addenda and conduct periodic legal reviews
• Behavioral risk: include safety and compliance gates and reinforce ethical standards

Business Continuity

• Maintain backup calculation tools and secure data storage
• Define contingency payout timelines for delayed financial close

Examples and Scenarios

Scenario 1: Below Threshold

• AOP at 78 percent of budget; threshold is 80 percent
• No pool funds; communications emphasize focus on long-term sustainability and improvement actions

Scenario 2: At Target

• AOP at 100 percent of budget
• Pool funds at 5 percent of eligible earnings
• Employee with <Amount> eligible earnings receives 0.05 times <Amount> = <Amount>

Scenario 3: Above Target, Capped

• AOP at 115 percent of budget; curve would suggest 9 percent but cap is 8 percent
• Pool funds at 8 percent; individual awards calculated accordingly

Document Change Log

Version	Date	Author	Summary of Changes
<1.0>	<Date>	<Name, Title>	Initial release
<1.1>	<Date>	<Name, Title>	Updated funding curve and added Local Addendum section

Glossary of Terms

• Adjusted Operating Profit (AOP): Operating Profit adjusted for specified items to reflect underlying performance
• Eligible Earnings: Pay elements included for award calculations, as defined in this plan
• Funding Curve: Relationship between company performance and pool funding percentage
• Local Addendum: Country or entity-specific supplement to this plan
• Plan Administrator: Function responsible for plan governance and administration
• Proration: Adjustment of awards to reflect partial-year eligibility or status changes
• Target Funding Percentage: Funding level at target performance
• Threshold: Minimum performance level required for any funding
• Cap: Maximum funding or award limit

Communication Section: Employee and Manager Guide

What This Plan Is

The <Company Name> Profit Sharing Plan is our way of sharing company success with employees. When our company meets its financial goals responsibly and sustainably, a company-wide pool is funded, and eligible employees receive a profit sharing payment. The plan is designed to be clear, fair, and aligned with our strategy.

How It Works, In Plain Language

1. We measure company profit using a standard definition reviewed by Finance and internal auditors.
2. If profit reaches at least a minimum level, a pool is funded.
3. The size of the pool grows as company performance improves, up to a maximum.
4. Your share is based on your eligible earnings during the year and, in some cases, your job level or role.
5. Payments are made through payroll after the year ends, once financial results are finalized.

Why We Use a Funding Curve

Strong years and challenging years are a normal part of business. The plan uses a funding curve so that payouts increase when performance improves and decrease when performance declines. This keeps the program sustainable over time and helps protect jobs and investments.

Who Is Eligible

If you are a regular employee and you work for <Company Name> on the last day of the plan year, you are generally eligible. New hires and employees on leave may receive prorated awards. Contractors and temporary workers are not eligible. Local rules may vary, and your HR representative can help clarify details for your location.

What You Can Expect

• When results are finalized, we will share whether the plan will pay out and at what percentage.
• If the plan funds, you will see your profit sharing payment on your payslip on or around <Payout Date>.
• Your payment will be taxed as required by law. It is not part of base salary and is not guaranteed.

Simple Example

If the plan funds at 6 percent, and your eligible earnings were <Amount> in <Currency>, your payment would be about 0.06 times <Amount>. Final amounts may vary due to rounding, taxes, and any prorations.

Common Questions

• Is this the same as a bonus? Profit sharing is a type of variable pay. It is based on company results rather than individual performance ratings. It is not guaranteed, and it is separate from any bonus plans tied to personal or team goals.
• When will I know the payout? We aim to communicate the funding percentage within <Number> weeks after the financial year closes. Payment typically occurs within <Number> days after that.
• What if I joined mid-year? You may receive a prorated amount based on the portion of the year you worked and your eligible earnings.
• What if I was on leave? Paid leave typically counts, unpaid leave may not. Local laws can affect this. Please check your Local Addendum or ask HR.
• Do I need to do anything? Make sure your personal information and bank details are up to date in the HR system. No application is required.
• Could the payout be reduced? Yes. Safety or compliance issues, data corrections, or other plan rules can reduce or eliminate payouts to protect the company and comply with laws.
• Is there a maximum? Yes. The plan includes caps to keep the program affordable and consistent.

Manager Talking Points

• Reinforce that the plan rewards our collective success and supports a culture of shared ownership.
• Emphasize that participation does not guarantee employment or any specific payout.
• Encourage employees to focus on controllable actions: quality, safety, service, and cost discipline.
• Direct employees to the intranet page for plan details and to HR for local questions.

Where to Get Help

• Visit the <Intranet Page URL> for the full plan document, Local Addenda, and FAQs
• Contact <HR Support Email or Portal> for questions or to report issues with your payment
• For confidential compliance concerns, use <Ethics Hotline Contact>

Closing Message

Profit sharing is one way <Company Name> recognizes the effort and commitment of our teams. Thank you for everything you do to support our customers, each other, and our long-term success.

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Document Information:

• Document Type: Company-Wide Profit Sharing Plan
• Category: Variable Compensation
• Generated: August 24, 2025
• Status: Sample Template
• Next Review: <Insert Review Date>

Usage Instructions:

1. Replace all text in angle brackets < > with your company-specific information
2. Review all sections for applicability to your organization
3. Customize content to reflect your company's policies and local regulations
4. Have legal and HR leadership review before implementation
5. Update document header with your company's version control information
6. At bottom of the document you find a short example on how the content could be communicated to end-users, for instance employees.

This sample document is provided for reference only and should be customized to meet your organization's specific needs and local legal requirements.