Management Of The Human Capital Assets Business Essay

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The Human Resources Management (HRM) function includes a variety of activities, and key among them is deciding what staffing needs you have and whether to use independent contractors or hire employees to fill these needs, recruiting and training the best employees, ensuring they are high performers, dealing with performance issues, and ensuring your personnel and management practices conform to various regulations. Activities also include managing your approach to employee benefits and compensation, employee records and personnel policies. Usually small businesses (for-profit or nonprofit) have to carry out these activities themselves because they can't yet afford part- or full-time help. However, they should always ensure that employees have -- and are aware of -- personnel policies which conform to current regulations. These policies are often in the form of employee manuals, which all employees have

Motivation is an important function of management. Every business organization plans, directs, organizes, co-ordinates and control the resources to achieve objectives. Motivation is the process of attempting to influence others to do their work through the possibility of gain reward. Every manager in the organization is motivating his/her subordinates to achieve better result. So motivation is an important part of an organization. Motivation improves the productivity. Bonus payment encourages employees work harder. It helps to increase their income while the employer as the advantages of greater production, resulting in higher sales and profit. Motivation is a psychological concept. Motivation is related with needs, desires, expectation, confidence and satisfaction. It arrives from inside the individual. Motivation is an act of stimulating an individual for action. The top level management should inspire and stimulate the subordinates to create interest in work. Then only aims of organization can be achieved.

Financial Methods of Motivation


An Employee Stock Ownership Plan (ESOP) is an employee benefit plan which makes the employees of company owners of stock in that company. Several features make ESOPs unique as compared to other employee benefit plans. First, only an ESOP is required by law to invest primarily in the securities of the sponsoring employer. Second, an ESOP is unique among qualified employee benefit plans in its ability to borrow money. As a result, "leveraged ESOPs" may be used as a technique of corporate finance.


On August 6, 2009, Senator Blanche L. Lincoln (D-AR) introduced S. 1612, the ESOP Promotion and Improvement Act of 2009. The legislation has four sections, including an entirely new proposal to remove a 35 year bias against ESOP companies by the Small Business Administration. Specifics of the new legislation can be found on the website at- - ( Mary L. Landrieu (D-LA) signed on as an original co-sponsor of the bill. The ESOP Association will be working with its members to make members of Congress aware of the concerns and hopes of ESOP advocates and assisting ESOP companies and employee owners in conveying their message to Congress.

What do Indiana and ESOPs have in common? More than you think.  In May 2008, Indiana State Treasurer Richard Mourdock began an innovative program called Indiana's ESOP Initiative (IEI).  The program was created to promote and encourage the formation of new ESOPs in Indiana.  One of Treasurer Murdock's goals after being sworn into office as the 53rd State Treasurer in November 2006 was to make Indiana the leading state with the number of ESOP companies within its borders. He saw it as an opportunity to keep more companies, future ESOP companies, and Hoosier jobs within the State of Indiana.

Profit Sharing

Profit sharing arrangement by which employees receive, in addition to their wages, a share of the net profits of a business. The purpose is to give them an incentive to increase their output through enhanced morale, less wasteful use of materials, better care of equipment, and the like. Profit sharing does not imply participation by the workers in management. The employer determines the rate at which profits are shared; since the rate is fixed beforehand, profit sharing differs from the bonus system. Profit sharing plans have been in operation in France since 1842 but have not been widely adopted in the United State. The plan has been most successful in businesses where employees work without direct supervision or where it is limited to supervisory employees or lesser executives, e.g., branch managers and department managers in department stores. Under a profit-sharing scheme, employees receive a share of the profit made by the business in addition to their basic salary.

Profit sharing acts as a good motivator for employees because it encourages them to increase the business's output and profits of which they can then own a share. It also has the advantage that the employees feel a greater sense of belonging to the business and take a greater interest in its success.

(The Columbia Encyclopedia, Sixth Edition | 2008)



In August 2002, B&Q made a record payment to their employees to their employees after the company's annual profits increased by 14% to £300 million. Around 30000 employees received 8.25% of their salaries as part of a profit share scheme. The B&Q Human Resource Director said 'People are the key to B&Q success. We want to share incentives across the company so that the hard work of every one of our employees is recognized as contributing to the company's successes'.


Bonus means the extra payment paid to the employees who work well and also help the business organization. For example, to complete its orders on time or to meet its sales targets. It is paid as a lump sum, usually either at Christmas or at the beginning of summer holidays. This payment encourages people to work harder and efficiently. Many companies are extending their bonus schemes to cover a wider range of factors, reflecting a broader set of business objectives. This can help avoid the potentially distorting effect of focusing too much on a single measure. In addition to financial and output considerations, bonus schemes increasingly take into account factors such as attendance, customer service, quality, safety, team and individual performance or various HR-related measures. However, some companies operate successful schemes that focus on one particular key objective - most often profits or productivity.

Tying bonuses to multiple business objectives can be achieved in different ways. Perhaps the most straightforward approach is to operate a range of bonus schemes providing appropriate incentives for different employee groups, while also operating corporate-level schemes to reward all employees for the overall performance of the company. The main alternative is a multi-factor, multi-level bonus plan.

Team-based Bonus Schemes

Team-based bonus schemes are gaining in popularity. By measuring targets at the level of specific teams, the impact of employees 'performance is much more visible than if the bonus were to be based on corporate-level factors alone. A team bonus scheme can encourage employees to develop new ways of working to meet their shared targets and can help to reinforce the culture of team working itself. Bonus schemes as a form of variable pay help to add flexibility to the overall remuneration strategy - rewarding staff as and when the business is performing well, without permanently increasing the pay bill.

Quality Bonus Scheme

Again quality bonus schemes are relatively predominant in the manufacturing sector; it's easy to measure quality as the number of defects found per day, week or month. However, the Service sector also uses quality as a factor e.g. Companies house has a target for the level of data capture accuracy each month, and the critical success factors set by United Utilities Service Delivery include meeting the water quality index and electricity standards.

Safety Bonus Scheme

Health and safety is most likely to feature as a factor in bonus schemes in manufacturing or other contexts where the perceived risks are highest. Safety is taken into account in the bonus schemes at BP Grange mouth and Kimberley-Clark's Barrow Mill.


Mrs. D and her colleagues were part-time cleaners employed by a local authority.

Their jobs had been evaluated in the late 1980s and placed in the same grade as

Men working in the cleansing department. However, the men received weekly bonus Payments in addition to their basic pay and the women did not. The tribunal found. That none of the reasons put forward by the local authority for the bonus payment stood up to scrutiny and awarded equal pay to the female cleaners.

Eleven of the AIG employees who were received so-called retention bonuses of $1 million or more are no longer with the company, according to a letter from New York Attorney General Andrew Cuomo that was sent to Rep. Barney Frank.


Gain sharing

The typical Gain sharing organization measures performance and through a pre-determined formula shares the savings with all employees. The organization's actual performance is compared to baseline performance (often a historical standard) to determine the amount of the gain. Employees have an opportunity to earn a Gain sharing bonus (if there is a gain) generally on a monthly or quarterly basis. Gain sharing measures are typically based on operational measures (productivity, spending, quality, customer service) which are more controllable by employees rather than organization-wide profits. Gain sharing applies to all types of business that require employee collaboration and is found in manufacturing, health care, distribution, and service, as well as the public sector and non-profit organizations. Typical elements of a Gain sharing plan include the following:

Gains and resulting payouts are self-funded based on savings generated by improved performance.

Gain sharing commonly applies to a single site, or stand-alone organization.

Many plans often have a year-end reserve fund to account for deficit periods.

Employees often are involved with the design process.

A supporting employee involvement system is part of the plan in order to drive improvement initiatives.


Helps companies achieve sustained improvement in key performance measures

Rewards only performance improvement

Payouts are self-funded from savings generated by the plan

Aligns employees to organization goals

Fosters a culture of continuous improvement

Enhances employee focus and awareness

Increases the feeling of ownership and accountability

Enhances the level of involvement, teamwork and cooperation

Supports other performance improvement efforts and helps promote positive change.


Measures are narrower than organization-wide profit and therefore gains may be paid even though profits may be down.

Requires a participative management style

Requires that management openly shares information related to performance measures

Employees may question or challenge management decisions that may adversely impact a gain.

Increases the level of organizational stress since everyone has more of a financial stake in the organization's success


A type of gain sharing plan that pays a bonus to employees for incremental improvements. The Scanlon plan was developed by Joseph N. Scanlon in the 1930s. A typical Scanlon plan includes an employee suggestion program, a committee system, and a formula-based bonus system. The simplest formula is: base ratio = HR payroll costs divided by net sales or production value. A Scanlon organization is characterized by teamwork and employee participation. A bonus is paid when the current ratio is better than that of the base period. A Scanlon plan focuses attention on the variables over which the organization and its employees have some control.


Merit plans

This paper describes employee reactions to the implementation of a performance-based pay plan. Out of 8,000 employees from seven operating companies covered by the plan, 4,788 responded to three open-ended questions. The questions allowed employees to say basically anything they wanted about the plan. The responses indicated that employees appeared to approve of the concept of merit pay, but were concerned about problems with its implementation. Employees appreciated the opportunity to be judged on merit, the money offered by the plan, and the incentive to raise performance; they were concerned with the quality of the goals that were set and with a lack of fairness or a perception of favoritism in the allocation of rewards.

Assessing the Merit of Merit Pay

The concept of merit pay has been around for quite some time. Evans (1970) asked the question of whether pay-for-performance was "fact or fable" twenty-five years ago. Meyer, writing in 1975, noted that "anyone reading the literature on this subject published 20 years ago would find that the articles look almost identical to those published today" (Meyer, 1975, p. 40, italics added). According to E. A. Locke, the use of money as a means of motivation probably traces back to the origins of money itself (Locke, Feren, McCaleb, Shaw, and Denny, 1980). Evans (1970) believed that merit pay has its origins in the sixteenth and seventeenth centuries with the Protestant Reformation. The protestant work ethic, which views man as competitive and individually oriented, emerged from the belief that economic success was evidence that a person who worked hard was serving God; material success was equated with spiritual purity. Thus, according to Evans (1970), performance-based pay plans continue this theme by rewarding those who have worked the hardest and contributed the most.

(Journal article by Christopher M. Lowery, M.M. Petty, James W. Thompson; Human Resource Planning, Vol. 19, 1996) (

Scanlon plan

The Scanlon Plan is a systematic approach to enhancing organizational effectiveness through a formal participation program and a financial bonus. It has met with varying degrees of success. The present study is an investigation of factors that account for this variation in success. Scanlon Plan success was found to be positively related to the average level of participation in decision making reported by employees, to the number of years a company had an SP, managerial attitudes, and expected level of SP success; but not related to company size." Scanlon Plans" have been successfully used by a variety of public and private companies for many decades.  These plans combine leadership, total workforce education, and widespread employee participation with a reward system linked to group and/or organization performance.  Our combination of experience in organization design and business literacy makes our approach to Scanlon Systems unique. Don Barkman, president of The Business Center, is a certified Scanlon Plan consultant and a Scanlon Leadership Network Best Practices Silver and Bronze Award winner.

A Scanlon System developed with The Business Center is more than just a gain sharing formula. It follows four key principles and processes:

A.  Identity & Education,

B.  Participation & Ownership,

C.  Equity & Accountability,

D.  Competence & Commitment.

We work through all levels of your company to help you design a system that integrates your leadership vision with employee education and involvement. The result is improved business performance. Incorporated into your Scanlon System will be a reward sharing element designed to meet the needs of your company. We don't impose a standard solution on your organization.

Follow this Scanlon Roadmap to Success.

1.  Secure top level understanding and commitment to pursue a Scanlon Plan.

2.  Key executives create the organization's "mandate."

3.  Senior management completes education and votes on "buy in."

4.  Middle management completes education and votes on "buy in."

5.  All employees learn about Scanlon and discuss using it.

6.  Committee formed and complete plan proposal developed.

7.  Proposal reviewed by top executives for authorization.

8.  Employees educated about the plan.

9.  Everyone votes secretly on whether to adopt the plan.

10.  Plan implemented for trial period and then reviewed / renewed.



HRM is considered as the backbone of any organization or firm. The relationship among the employees should be cordial and there should be a jovial environment. Gender equality is gaining importance in present market. Women are being considered as potential threat or competitors to their male counterparts. With an able leader organizational goals can be achieved through proper planning. Corporate social responsibility also plays an important role in the development of an organization. CSR agenda is to inspire, challenge and empower employees, to positively contribute to local communities and environment; to help create a substantial business future for all. CSR is viewed as part of the way in which business is done and an active approach brings tangible benefits to business. From above circumstances we can say that HRM is more than a simple reworking of the human resource school of management but a successful business strategy, coping for the natural, progressive and harmonious development of our business sector.