Managing Human Capital And Incentive Effects Accounting Essay

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Employees incentives is a force which makes them do things right in some direction and gives inspiration to complete that specific goal or objective. These incentives are based on experience, skills, age and are different from person to person in an organization where everybody has their personal or financial needs to motivate themselves towards work. Depending on how much committed we are for that organization, it may further determine the activities we engage in our work. (Incentive central 2010)

When we suggest triggers or factors that create the promotions or progress of employees in the working environment then almost every single employee would immediately started thinking of a high wages and incentives. Incentives, enthusiasm or interest causes a specific action or certain attitude in an organization.(Business ball 2010)

When satisfaction is not availed, the person's productivity, enthusiasm become less and eventually quits or is sacked. Achievement, enhancement, recognition, growth, responsibility and job nature are internal motivators. They occur when the person do self-motivation to themselves. Understanding the uses and benefits of incentives and then applying it in relative field, is one of the most prevalent challenges of employers. Companies often spend a lot money each year paying incentives like ESOP, Profit sharing, Scanlon plan, Annual Bonus, Gain sharing and Merit plans just to give encouragement towards their work. (Ncbi 2010)

Benefits drive the professional life of workers to a certain goal or objective in an organization. It plays a major role in nearly everything. In absence of these factors, we would simply not look after about results, means, goal accomplishment, employment, training, success, failure, etc. (Cipd 2009)

Incentives Effects on Workplace

Rewards and incentives have an impressive and signifying effect on result of any business, which relates in both quantity and quality. Your business relies heavily on the performance of your people to make sure that products are being assembled in figures that meet demand for the desired week. The volume of your business is not relevant, even if you are getting out better out of one hundred of your staff or just one few, everybody needs some form of financial encouragement. It is approached differently by different sort of corporations, responsibility of its integration remains with all immediate all work people. It is the business owner who must start this kind of internal business strategy plan to acquire corporate goals. (Planware 2010)

Encouraging staff in the working environment is one of the biggest challenges for managers in all kind of companies. To Increase productivity there should be major approaches from managers in any organization. Employees are the greatest asset of any organization and no matter what level of efficiency your technology and equipment may be, there is no match for the effectiveness and performance of your work force. (Scitopics 2009)

Employee Stock Ownership Plan (ESOP)

ESOP (Employee Stock Ownership Plan) is such a well defined contribution plan which benefits employees and permits them to be owners of stock in that organization. ESOP is basically an equity based deferred compensation plan. Many features of ESOP make its unique, if it is compared to other employee benefit plans system. At the first view, ESOP is required by law to invest first in the securities of the sponsoring company. Secondly, an ESOP is unique with other qualified employee benefit plans in its ability to borrow any sort of assets. Consequently, "leveraged ESOPs" can be used as a technique of corporate finance. (Hrguide 2010)

3.1 Example 1 of ESOP(Infosys Technologies)

Infosys Tech is first ever Indian organization who started giving ESOP plan to its 100,000 employees, even to drivers. Nearly 1,200 workers are currently getting benefits by the ESOP scheme. Their workers paid rupees one hundred per share to change their ESOP warrants into company's. Company has also received government permission to issue dollar-denominated stock options.(India times 2004)

3.2 Example 2 of ESOP(Aqua Hotels and Resorts)

Aqua hotel and resorts, Hawaii, which is Waikiki-based, has changed into the country's first hospitality chain under employees giving ESOP. Hotel CEO, Mike Paulin and wife, Aida, will now share ownership of their organization. To finalize of a worker stock ownership plan, Aqua's five hundred workers who are spread throughout thirteen other properties as well, are now eligible to own a big piece of the company along with ownership of Chief Executive Mike Paulin and his wife, Aida.(Encyclopaedia 2008)

3.3 Example 3 of ESOP(National Centre for Employee)

Among non profit members and research companies, National Center for Employee has a significant name. It serves in relative fields of information about ESOP, Equity incentive plan and company culture.(Nceo 2010)

3.4 Example 4 of ESOP (Nestle Purina, USA)

Nestle Purina Ltd. is a US based International firm. United States Court for the eighth circuit said company did not deduct cash payments to the people deserved. United States Court had ordered the company to distribute cash to dividends. (Ca8 2010)

3.5 Example 5 of ESOP (General Mills, Inc. & Subsidiaries, USA)

General Mills, Inc. developed three ESOP plans for employees and later they sued the Trust for refunds of corporate income tax. GMI's stock and assets have been held by a trust.GMI contributed to the ESOPs for the benefit of participating. Company asked for deductions of cash payments and interest because Trust purchased GMI stock. Trust distributed participant's cash, stock and value of ESOP's account that left the company. (Ca8 0210)

3.6 Advantages of ESOP

Initially it can give back taxes paid

Corporation can re-finance existing debt with ESOP

Its increases cash flow and working capital

Corporation can have tax deductions with less cash expenditure, which can be used to increase market share

Employee benefits cost can be reduce

Corporation's loyal workers can have piece of action and it also reduces tend for salary increment (Hrguide 2010)

3.7 Disadvantages of ESOP

It decreases percentage ownership of the shareholders

It might not get relative consideration on sale stock

Participants should have right to in favor for employer' securities related to their accounts

Being ESOP leveraged, debt could take much of the company's credit

While with ESOP adoption, its better to eliminate other retirement plans to enable company's ESOP pay of cost, employee might not like effect

Risk of lawsuits can be increased with existence of company's plan investment(Hrguide 2010)

Profit Sharing

A company who shares some of its profit with its staff is called Profit Sharing. Compensation of staff can be stocks, bonds, money. Profit Sharing contributions are determined by a mathematical equation to provide the ultimate contribution and distribution of accumulated money available after the retirement. Plan is stated as an elective deferral plan, even contributions are not tax deductibles. (Investor words 2010)

4.1 Example 6 of Profit Sharing(Anderson Corporation)

Andersen Corporation, Bayport, U.S., said, that it would not share profits from year 2009 with its employees because 2009's profit was down from previous couple of years. Profit sharing had been at twenty percent of salaries for 2006-2007, but somehow dropped to 6.5 percent of salaries after year 2008. The company permanently cut down 250 management and office positions in last July at the Bayport offices in 2009. (Stillwatergazette 2009)

4.2 Example 7 of Profit Sharing(National Partk Service Policy)

In Cheyenne, Wyoming, USA, Environmentalists are raised concerns about an implementation in National Park Service policy, which will make parks to share some profits from research. Many public groups predict the plan would not be practical, unreasonably expensive, compromise resource protection. Spokesman Al Nash, for Yellowstone says the plan would neither convert how park research is handled nor incur additional bureaucratic expenses except when researchers might get profit. (Taragana 2009)

4.3 Example 8 Profit Sharing(Alston and Bird, Washington, USA)

Brian Lebowitz is a world famous U.S. based Tax Analyst and Lawyer. He has regarded and published Profit Sharing in International Taxation Systems as a New World Order on November 17 2008.()

4.4 Example 9 Profit Sharing (SurveyGizmo, USA)

SurveyGizmo is a US based business survey website which announced a new profit sharing plan for their employees on 23 June 2009, which as follows :

Employees should be incented to increase customer base

Employee's incentives level should be equal to maintain regular customers happy

To run organization efficiently workers should be Incented

Incentives should be transparent

Invectives have to be ongoing and paid with immediate effect

4.5 Example 10 Profit Sharing (Port Columbus Airport, USA)

Port Columbus Int. Airport, Ohio, USA, is going to be Profit Sharing Incentive Company. They suggest to get all Airlines on board on the time and reducing fees. (Industry 2009)

4.6 Example 11 Profit Sharing(John Lewis, UK)

England's huge retailer announced their annual bonus which of 15 % is going to be shared to their 70,000 employees through profit sharing.(Guardian 2010)

4.7 Advantages of profit sharing

It's create company's success and bring workers together towards goal

It highly motivates employees

Profitability of organization will be main concern

Organization commitment are higher among workers

Employer and workers create bridge among each other

Employee's life is comfortable in both person and professional

4.8 Disadvantages of profit sharing

It lacks merit so salary increases individually

Organization employees earnings are fluctuated which affect employees wages

Quality can be main focus of worker rather than profit (Paggu 2010)

Scanlon Plan

Scanlon Plan is a type of gain sharing plan that gives a bonus to workers for incremental improvements according to their performances. This plan was made by Joseph N. Scanlon in the late 1930s. A bonus is rewarded when the current ratio is better than that of base period of time. Its delivers attention on the variables over which the company and its workers have some control. (Bnet 2010)

5.1 Example 12 of Scanlon(US Vision)

U.S. Vision, New Jersey is an insurance firm, announced to give award membership to Scanlon Plan Associates. Company said that it has opened thirty seven new locations this versus three in the same period last year and one hundred new stores over an 18 month time period. William A. Schwartz, president and CEO of U.S. Vision, Inc. added they are rapidly spreading. (Answers 2010)

5.2 Advantages of Scanlon Plan

Company get an exact idea of loss or profit in view to derive ratio

It gives bonuses on increment base

It is only awarded when the current ratio is better

Workers get Scanlon plan benefit as team work participation, which means staff get same amount of bonus as management

5.3 Disadvantages of Scanlon Plan

Equal bonus cannot give exact idea of individual performance

It can take some time period to grow in large organizations(Pdii 2010)

Annual Bonus

Annual Bonus is a sum of money awarded annually to an employee/worker in an organization in addition to the wages. A major number of workers have the chance to earn annual cash money, which is based on performance of financial and non-financial targets.(Kcom 2010)

6.1 Example 13 of Annual Bonus(Lloyds Tsb)

Eric Daniels, boss of Lloyds Tsb Banking Group boss would reap £ 6.2 m, which is salary and share options for year 2010. Mr. Daniels waived £ 2.3 m incentive which was due for his year 2009. Executive directors would have pay which is performance-based totalling £ 4.17 million. Truett Tate, head of wholesale banking, received £ 1.12 million. Head of insurance, Archie Kane and senior executive, were paid £ 885,000 in addition to their £590,000 wages. Executive directors did not take any bonuses in year 2008.(Mirror 2010)

6.2 Example 14 of Annual Bonus(F & C)

International Finance firm F&C's Chief Executive gained £ 1 million cash and shares bonus. According to F & C, Alain Grisay had £ 700,000 in cash, £ 300,000 in shares which were deferred for three financial years. David Logan, finance director, would have £2.37 million as shares based bonus. (Investment week 2010)

6.3 Example 15 Annual Bonus(Tenth Circuit Court, USA)

In US, a female radiation therapist in a hospital gained an annual bonus. She did a mistake and regarded that as income gift. Court dismissed her argument about the annual bonus as gift because she had friendship with her employer. Court have penalty of $ 6662.(Taxprof 2005)

6.4 Example 16 Annual Bonus(Wall Street Investment, USA)

President Obama's govt. highly condemn the billions dollars bonuses achieved by Wall Street Investment Banking. He further said many people believe these bonuses are imperative to bring success in banking business.(Law 2010)

6.5 Example 17 Annual Bonus (Supreme Court, USA)

In US, people with higher salaries starting from $145,000 would be paying more tax to the government. Bigger law companies employee's $ 200,000 bonuses would go the taxman. (Washingtonpost 2007)

6.6 Example 18 Annual Bonus(Wall Street Journal, USA)

Top banks in Wall's street highly paid employees received bonuses more than $ 70 bn. Many people picked up payouts from the US government a bailout of $ 700bn. Government would pour this cash on basis of executive pay be curbed. (Angrybearblog 2008)

6.7 Advantages of Annual Bonus

Annual Bonus keep motivating workers towards work

It increases quality, production and work esteem among organization

Greater yearly turnover and creating healthy competition among employees

6.8 Disadvantages of Annual Bonus

Misconduct or misuse of bonuses can create jealousy or confusion among workers

Unfair distribution can create feeling of being used in company (Management issues 2005)

Gain Sharing

Gain sharing is basically an employee job encouragement technique where performance is measured in such areas sales, customer satisfaction and cost reductions and compensation is given. Gain sharing is also given to workers for achieving specified goals and objectives. (Bnet 2010)

7.1 Example 19 of gain sharing(Healthcare Department)

Healthcare department, New Jersey, USA. Mr. MacVaugh released his concern that staff including nurses, environmental services department directors, technicians, might get and demand same benefits. These benefits programs could take people to arbitration and litigation between other groups, especially when health workers determine who brought ideas to create products that could lead to savings. (High beam 2005)

7.2 Example 20 of gain sharing(Medicare, AL, USA)

Medicare centers based in Birmingham, AL, USA, released new planned principles rule that would add a regulatory exception to protect gain sharing and benefits payment programs between physicians and hospitals. Only hospitals physicians or qualified people in physiotherapy organizations can apply in a program.  Benefits of gain sharing and pay for performance arrangements give hospitals with an efficient cycle for motivating physicians to help hospital cost reduction and also patient care benefits. (Balch 2008)

7.3 Advantages of Gain Sharing

Strong relation among workers behaviors performances

It enhances financial and operational

Suits a huge range of organizational types

It makes relationship among management and unions

It supports work flexibility and enhances workers motivation

7.4 Disadvantages of Gain Sharing

It can be overall complicated and rough

Its needs intense look after to measure workers performance(hr guide 2010)

Merit plans

Merit Plans is basically a work performed in an organization for a set hourly number of wages that differs from one pay duration to another as a function of the employee's productivity, but its never declines beneath guaranteed minimum wages. (Hr guide 2010)

8.1 Example 21 of merit plan(Teachers Association)

Deland, Florida, USA. Volusia County teachers and support workers wanted Charlie Crist to stop a controversial bill which would change teachers wages and incentives. Association's president Andrew Spar said that teacher's wages and benefits is concerned with student's academic results and also added that bill would decrease teachers job pressure. Christ explained funding merit plan for teachers pay would be disastrous and Volusia need $20.5m in its 2010-11 yearly budget. (News journal online 2010)

8.2 Example 22 of merit plan(Teachers Association)

Tallahassee, Florida Senate, USA, want to shake teacher's wages system in state. Tightening graduation requirements, expanding tax credit allows student to get enrolled in private institutions. Teachers and students can take advantage for a bill which is going to be passed by government. That bill is a brand new merit pay evaluation system would reduce teachers tenure and benefit them on students tests. (Tcpalm 2010)

8.3 Example 23of Merit Plan(Education Board, Florida, USA)

Florida Education Board announced a merit plan based scheme for teachers and educators based on students test and exams. Teachers union raised arguments against that plan. Teachers said it is not good for their skills, specially many children are with learning disabilities.(Suite101 2006)

8.4 Example 24 Merit Plan (Education Department, USA)

US President Obama given a green signal to teachers through merit pay plan. President intending to pay more attention on America's education system with extending incentives plan which will eventually increase students performance. (Online 2009)

8.5 Example 25 Merit Plan(American Federation of Teachers, New York, USA)

Randi Weingarten, American Federation of Teachers, is not convinced about a criticized article from New York Times, D.C. Chancellor Michelle Rhee's merit pay plan. Randi added the article shows no sympathy towards teachers who are working hard improving children education. Debates and arguments are still going on to approve that plan, may be near future 6000 teachers and educators would get $ 19.7 m according to that plan. (Blogs 2008)

8.6 Example 26 Merit Plan(Seminole School Board, USA)

Seminole School Board opposed teachers merit pay bill and sent a letter to state Governor Charlie Christ. A teacher Sylvia Bond challenged school board and asked them come in school as a teacher and see problems. (Blogs 2010)

8.7 Example 27 Merit Plan(Education Board, USA)

Teachers union were demonstrating an hour procession on 8 April 2010, at Maury Road, Orlando and asked for supporter to join them as well. Main idea for procession was to make people and government realise that merit pay plan is necessary to maintain education system. (blogs 2010)

8.8 Example 28 Merit Plan(Bloomberg, New York, USA)

Bloomberg school administration and Teachers Union, New York did agree on a merit pay plan that would give teachers bonuses on average student scores. (Cityroom 2007)

8.9 Example 29 Merit Plan(Education Board, Florida, USA)

Florida senate had approved decision that teacher salaries and bonuses would be evaluated on students performances. Andy Ford regarded that decision as punishing, scapegoating and pushing teachers out from classrooms.(Iamforkids 2010)

8.10 Example 30 Merit Plan(Denver Public School, USA)

Denver Public School's Teachers are getting enrolled into merit pay plan designed by government to get financial benefit. Round about 500 teachers have already enrolled, many more are coming in which largest workforce is elementary estimated about 4100.(Mikefalick 2005)

8.11 Advantages of Merit Plan

It allows company to give incentive to high performance people

Merit Plan differentiate among individual and organization performance

It derives company to award benefit only those who with satisfactory accomplished goal

8.12 Disadvantages of Merit Plan

Difficult to define, would behavior would be compensated

Poor relationship between supervisors and workers (Hr guide 2010)


Improving quality, production, performance, motivation with rewards is a method that is most common when businesses rely on quantity of employee's output. Without Incentives in organization, businesses can suffer lack of efficiency and workers may not perform enthusiastically. This is because they have no financial encouragement to perform jobs assigned to them. Therefore it is important that employer give workers rewards for their better performance and increase motivation to continue specific pace of work.

Factors that make people professional, create enthusiasm and prevent them from job dissatisfaction are incentives or benefits. Every single human being is inspired by various factors, majority of these are money orientated. These factors deliver great achievement and personal recognition and have worked much efficiently in many organizations which we have proved with above examples. To increase efficiency level among employees and to decrease job dissatisfaction incentives play an important role in any organization. Reason of this is because workers require elimination of unhappy environment in their jobs.

Beside huge inspirational and motivational benefits of incentives there are also some bad factors. There are some dangers which have to be secured against with implementation. Workers do sacrifice quality for the quantity. Health and safety rules and regulations can be disregarded by employees and this may increase accident ratios in organization, continuously vigilance can overcome these ratios. Workers might tend to work more by undermining their heal, this may be monitored by fixed incentives earnings.

In the last, incentive plans sometimes also head to jealousy, confusion and misunderstanding among employees. In fact, earning differences would be different for employees compared to the differences in their performances and efficiency.