Business Improvement As Key Points For Companies Commerce Essay

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In the modern developing and changing world in which business activity plays main role with the human resource management as a key point for any business company, which wants to reach its strategic goals and objectives helps to improve their business performance and develop organizational structure by encouraging an innovation. As one of the best example of a high-quality business strategy, which is liable to take its business to the success, is forming employee's motivation.

1.2. Motivation as the way of effective strategy management improvement

Nowadays for every company in the world's business environment, the motivation is one of the most important instruments.

There is an old saying you can take a horse to the water but you cannot force it to drink. It will drink only if it's thirsty - so with people. In other words above saying means that you can give someone all the right conditions to do something, learn something etc, but in the end nobody can force them to do it. For example, you could provide a school, classroom, books but you cannot force knowledge into a person's head. They will do what they want to do or otherwise motivated to do. Whether it is to excel on the workshop floor or in the "ivory tower" they must be motivated or driven to it, either by themselves or through external stimulus. (Productive Workplaces: Theory and Practice: Employee motivation, the organizational environment and productivity. http://www.accel-team.com/motivation/)

1.3. Factors of Changes in motivation, that became as a challenge for employers

Every company sooner or later will face a simple question: How can we motivate my employees? There is a simple answer: You cannot do it alone! By answering this simple question let me introduce in my assignment the basic discussion about this topic by mentioning implementation changes in a company, where employee motivation in a small companies works best as a partnership between employer and employees. Also in my assignment, I will provide several practical suggestions for human resource managers and employees to use in improving employee motivation.

1.4. One of the example of motivating employees - Employee ownership

As a good example of making employee motivation a partnership is to make them stock owners of the company where they work at. The above-mentioned instrument of improvement employee's motivation is named as the Employee Stock Ownership Plans ("ESOP"), which in practice leads to improve corporate performance.

2. EMPLOYEE MOTIVATION AS A PARTNERSHIP BETWEEN EMPLOYER AND EMPLOYEE

2.1. Introduction

It is well recognized that employee motivation, more accurately the lack of motivation, often frustrates employers. There is the obvious fact that most any approach to motivation will sometimes work for some people. The trick is that no approach works all the time for all people.

Motivation is the internal force that drives employee performance. The force of this force to achieve the aim describes the level of motivation. Two people may both say and believe they want to be excellent employees. The intensity of their desire to be excellent measures their motivation. Employers pay more attention to what employees do than what they say or believe. Motivation is the force that causes employees to deliver on what they say. (Bernard L. Erven, Robert A. Milligan: Making Employee Motivation a Partnership)

Here is the fact that most employees prefer to be motivated, so why would an employee want not to be motivated? Motivating jobs and work environments win praise from employees. Obviously, that one employee finds motivating rather that another one can find this boring, frustrating and debilitating. In addition some employees bring a lot of baggage of their experiences from previous employment and failures to the workplace to find their motivating niches in life.

2.2. Self-motivation.

Self-motivation plays a crucial role in nowadays' life. Achievers tend to continue achieving. Past accomplishments, challenging career goals, expertise in one or more areas, pride in one's abilities and self-confidence contribute to self-motivation. At the same time an unmotivated employee can become motivated. On the other hand, a motivated employee can lose motivation.

2.3. Satisfying Needs

The most intuitive approach to motivation is to satisfy an employee's needs or requirements. In order to "Making Employee Motivation a Partnership" Bernard L. Erven, Robert A. Milligan, this approach has four parts:

• Employees have needs that they want to satisfy, which in turn

• Leads to actions that will fulfil their needs, which in turn

• Leads to rewards from the employer and satisfaction from doing the job, which in turn

• Reinforces their actions and causes them to be repeated.

2.4. Necessity of identifying needs.

To identify employees' needs the employer have to get help from employees, then the employer can choose the "right" employee rewards for doing a job well. Providing the "right" rewards reinforces the employees' actions thus causing the employees to repeat the actions to get the rewards again.

2.5. Summary

Motivation success requires more than the employer's sole reliance on satisfaction of needs. Reinforcement of desired behaviours and cooperation between employer and employee need to be added to the power of needs.

As we mentioned above the basic argument that employee motivation works best as a partnership between employer and employee, it means that employer and employee are dealing together more than by each working alone. In other words the motivation partnership means that both parts of work relationship are committed to synergy rather than waiting for the other to solve the motivation puzzle, where the employer and employee share responsibility for motivation in form of cooperation not separation, which means that both parties are responsible for the success and performance of business. All this means that the employees' responsible in cooperation has to be extra paid to strengthen their motivation. As the best example in this case can be play benefit plan that provides employees with stock in their corporation named as the Employee Stock Ownership Plans ("ESOP")

3. CONCEPT OF ESOP

Definition

In order to definition which has been given by Investopedia, Employee Stock Ownership Plans, in abbreviation of ESOP, can be used to keep plan participants focused on company performance and share price appreciation. By giving plan participants an interest in seeing that the company's stock performs well, these plans are believed to encourage participants to do what's best for shareholders, since the participants themselves are shareholders. (http://www.answers.com/topic/employee-stock-ownership-plan)

Taking the definition from other practical source, being more accurately from corporate hand book "ESOP's Fables", conducted by Sanli Pastore & Hill Advisory Services, an ESOP is an employee benefit plan that provides employees with stock in their corporation.

In its most basic form the company buys its own stock, which it then gives to an ESOP, which holds the stock for the benefit of the employees. The stock purchased by the company for the ESOP may be acquired from an existing shareholder(s) or may be newly issued stock that is not acquired or bought. In a leveraged ESOP, however, the ESOP borrows money to purchase the company stock. The company then makes cash contributions to the ESOP so that it can repay the ESOP loan.

Historical background

3.3. Advantages and Disadvantages

Good candidates for establishing an ESOP are companies that:

• Have a large enough payroll to justify the costs to establish and administer an

ESOP;

• Can afford the annual contributions and the initial costs to establish an ESOP; and

• Have a management team open to sharing ownership with employees.

ESOPs provide strong tax advantages for both the company and the selling shareholder.

First, in a leveraged ESOP, both interest and principal payments on the ESOP loan are

tax-deductible. Second, if the ESOP purchases existing stock, the selling shareholder(s) can defer capital gains on the sale of their stock so long as the proceeds from the sale are reinvested in similar investments (e.g., domestic publicly traded stock, etc.).

In addition to providing tax advantages, ESOPs often improve worker productivity and the company's profitability by aligning the interests of the company's employees with its owners. Perhaps the greatest benefit for the employees is the ability to share in the company's success.

While the benefits of ESOPs are many, a lack of their understanding has engendered

many negative myths. The following morals, gleaned from Aesop's Fables, will help

clarify the truth shrouded by the falsehoods.

In Unity There is Strength:

In "The Bundle of Sticks", a father gives his three quarreling sons a bundle of three sticks and has each son try to break the bundle. None can do it alone, yet when the father divides the bundle, giving one stick to each boy, the sticks are easily broken. This shows that teamwork yields greater results than working alone.

The most prominent myth about ESOPs is that broad-based ownership fails to improve corporate performance because employees are not interested in ownership. Numerous studies, however, have shown that, when combined with a culture that embraces "participative management," broad-based ownership is a powerful way to improve a company's operating performance.1 (1 Employee Ownership and Corporate Performance, NCEO, 2002.)

By themselves, however, neither participative management, nor broad based ownership, accomplishes much. In order to develop a "high performance" ownership culture, it is stressed that a company must ensure that:

• Employees understand the meaning of ownership. They move beyond "I'm an

owner" to the notion of a community of owners.

• Employees can communicate openly in all directions.

• Employees understand and are committed to the company's business goals.

• The company provides extensive financial education and gives employees

ways to affect corporate outcomes.

• The company's needs and the individual's needs continue to be balanced as

employees understand how individual actions affect the company as a whole.2

(2 Vanderslice, Virginia. Creating Ownership When You Already Have Participation, NCEO, 2002.)

When employees feel they are partners in the company's future, not merely paper owners, a true alignment between their interests and those of management is achieved, resulting in a stronger, more solidified workforce. (Employee Ownership Report, May/June 2003, NCEO, page 12)

3.4. Numbers & Practical experience

The Method Should Suit the Circumstances:

In "The Donkey and the Load of Salt," a donkey and a merchant are traveling to a

marketplace to sell their goods. On the way, the donkey loses half of his load when he

accidentally slips into a river. On the way back, the donkey decides to do the same thing in order to make his load lighter, yet the new load consists of sponges and only adds weight. By attempting to utilize a method that worked one time, he did not consider that the circumstances may have changed, and that his work actually doubled as a result of using the incorrect method.

There are many misconceptions surrounding the reasons a company adopts an ESOP as part of their overall business strategy. Some of these include using the plan as a takeover defense, a buyout of a failing company, or as an exchange of stock for labor concessions.

In truth, these reasons explain less than 6% of all ESOPs. (4 How an Employee Stock Ownership Plan Works, NCEO, 2002.)

While the reasons for establishing an ESOP vary on a case-by-case basis, ESOPs are

often formed by successful companies to:

• Create a liquidity event for a departing shareholder as part of their exitstrategy;

• Diversify the investments of a majority shareholder;

• Raise capital on a pre-tax basis to fund existing operations or an expansion;

• Improve morale and reward employees;

• Privatize a government entity;

• Sell a subsidiary or division; or

• Take a public company private.

Given the diversity of motivating factors, it is essential that companies considering an

ESOP retain well-qualified ESOP experts that can complete the ESOP while helping

them attain their goals.

Don't Neglect Small Things When Thinking of Great Ones:

In "The Astrologer," a man becomes famous when he can see the future in the stars. One day as he is walking and looking into the sky for guidance, he falls into a hole in the ground. Though he could predict the future, he could not see the hole at his feet.

The astrologer is thereby reminded that taking time to concentrate on things big and small is the way to success.

Attention to detail is a critical aspect of establishing an ESOP. Because of the tax

advantages and labor issues surrounding ESOPs, both the U.S. Internal Revenue Service and the U.S. Department of Labor closely scrutinize ESOPs. As a result, ESOPs are complex transactions, which, if not structured correctly, can result in unrealized tax savings, unnecessary government audits, as well as costly litigation. While many attorneys, financial advisors and business appraisers provide ESOP-related services, few have the education, resources, and most importantly, experience to guide their clients through the complex regulatory environment. It is thus imperative that companies establishing an ESOP retain an independent appraiser that routinely provides valuations in highly scrutinized situations and that has extensive litigation experience. Taking these steps will significantly decrease the potential for a dispute and provide protection, should the valuation ever be challenged.

There are Two Sides to Every Story:

"The Man and the Lion", was written by Aesop to convey the importance of listening to both sides of a situation before drawing a conclusion. In this fable, a lion and a man are arguing over who is stronger. The man proclaims that humans are because of a statue illustrating a man conquering a lion. The lion counters that it might have been a different story had a lion made the statue.

Perhaps the worst reputation attributed to ESOPs comes from the failure of United

Airlines ("UA"). In 1995, UA formed its ESOP and experienced an incredible year: UA outperformed the S&P by 67%, sales per employee increased 10%, and employee

grievances declined 74%.5 (5 United Airlines and Employee Ownership, Employee Ownership Report, January/February 2003, pg 15) By 2000, the ESOP was terminated, UA was embroiled in

bitter labor disputes, and UA was plagued by poor employee morale and excessive flight delays.

Many of UA's problems could be traced, in part, to management's reluctance to create a permanent ownership culture. First, UA's ESOP was structured so that UA would only make contributions to the ESOP for five years. This had two effects. First, employees did not see the creation of the ESOP as a permanent benefit of their employment.

Second, employees joining UA after the last year of the ESOP were never able to join the ESOP. This resulted in a two-tiered labor force: employee owners worked along side regular employees. As a result, labor negotiations became more contentious and

employee morale plummeted.

Southwest Airlines, however, combined its employee ownership plan (which is similar to an ESOP) with a strong participative management culture. The airline proudly states that it "puts their employees first, the customers second, and shareholders third."6 (Ibid) The company's employees work in teams to decide policy, information is shared freely, and employees are empowered to make decisions. Southwest Airlines now has, "a market capitalization greater than the major airlines combined."7 (Ibid) Thus, Employee ownership can and does work in the airline industry, demonstrating there are two sides to every story.

3.5. Summary

An ESOP provides a structure and foundation for cultivating an organization that

embraces cooperation, teamwork and success. In addition, ESOPs provide significant tax advantages and allow for a continuity of management. Finally, sharing ownership with employees can increase morale and productivity, making the company more competitive and profitable.

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