Question

The effectiveness of profit-sharing plans may be diminished because:

A. Potential free-rider problems render such plans ineffective in all but the largest companies.
B. Plans are tied to group performance, so the link between profit-sharing and worker productivity is not always clear.
C. There is no means by which greater work effort can be translated into greater compensation for a single individual.
D. Profit-sharing is a type of deferred payment scheme.

Answer 1

The effectiveness of profit-sharing plans can be reduced due to their focus on group performance, which obscures the link between individual productivity and compensation, and raises the risk of free-rider problems.

"the correct option is approximately option A"

Step-by-step explanation:

The effectiveness of profit-sharing plans can be diminished for several reasons, including:

• Plans being tied to group performance make the individual contribution to productivity less tangible.
• The potential for free-rider problems where individuals benefit from the collective effort without contributing proportionally.
• The lack of a system to translate individual effort directly into increased compensation.

Profit-sharing plans involve profits and earnings distributed among employees, which theoretically should lead to improved productivity, as employees benefit from the success of the business. However, the collective nature of these plans can dilute the incentive for individual effort. While defined contribution plans like 401(k)s provide personal incentives by linking individual contributions to retirement accounts, profit-sharing plans struggle with ensuring that individual efforts are adequately rewarded due to their focus on group outcomes.