Which type is best for your business?
Profit sharing is popular because it is simple, its measures areunderstandable, and everybody--from the lowest employee to thecompany's owner--has a stake in profits. Make a profit andeverybody gets to keep her job and the investors in the company arehappy. Profit-sharing plans include both immediate cash payoutplans and deferral plans. A payout plan pays cash to eligibleemployees at the end of a stated period of time, typically at theend of the company's fiscal year. A deferral plan can take manyforms. The company could make deposits on behalf of employees intotheir IRA or 401(k) plans. Deferral plans can have tax advantagesfor employees.
Excerpted from Attracting & Rewarding OutstandingEmployees