How can today's hospital improve employee productivity and operating efficiency while continuing to provide quality health care? One way to accomplish this goal is to develop an organizational profit-sharing plan. Such plans give employees a share of the savings which result from improvements in operating efficiency and productivity.In the past, nonprofit hospitals have not offered employees profit-sharing plans because the federal government held that tax exempt institutions must be organized and operated exclusively for exempt purposes; thus, no earnings could accrue to the benefit of individuals associated with the exempt entity.1Recently, however, the federal government declared that organizations exempt under Section 501 can establish profit-sharing plans for their employees if certain safeguards and restrictions are present.2This policy change enables nonprofit hospitals to make extensive use of profit-sharing plans.Since nursing managers at all administrative levels will play a vital role in the operation of profit sharing plans, they need a basic understanding of how these plans are developed and operated.