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MyVirtualCPA, Master's Degree
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How is an earnings-at-risk plan different from an ordinary

Resolved Question:

How is an earnings-at-risk plan different from an ordinary gain-sharing or profit-sharing plan? How might earnings-at-risk plans affect attraction and retention of employees?
Submitted: 4 years ago.
Category: Single Problem
Expert:  MyVirtualCPA replied 4 years ago.
Earnings-at-risk (EAR) incentive plans are designed to enhance performance by creating base wage dissatisfaction that, in turn, triggers greater effort directed toward performance behaviors rewarded with incentive pay.

Ordinary gain sharing and profit sharing plans are incentive plans as well, but in addition to the employees normal income they also get the profit or gain sharing bonus if the results of the organization are favorable.

Earnings at risk plans may negatively impact a company's ability to attract and retain employees. The base wage may be unsatisfactory to the employee, who may in turn migrate to a competitor who is offering a base pay. Although under the earnings at risk plan the employee may earn more, they see their base pay as the only amount that's guaranteed.

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