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Motivating employees at the workplace has become a challenge for employers today. Employers do give ESOP, Profit sharing, Scanlon plan, Annual Bonus, Gain sharing and Merit plans. Do you think it is a good idea on the part of any management to award employees with merit issues? Why or why not? Discuss and debate. What factors should management consider in your opinion? Substantiate with many relevant organisational examples.
Effects on Workplace
Employee Stock OwnerShip Plan
3.1 Example 1
3.2 Example 2
3.3 Advantages of ESOP
3.4 Disadvantages of ESOP
4. Profit Sharing
4.1 Example 1
4.2 Example 2
4.3 Advantages of Profit Sharing
4.4 Disadvantages of Profit Sharing
5. Scanlon Plan
5.1 Example 1
5.2 Advantages of Scanlon Plan
5.3 Disadvantages of Scanlon Plan
6. Annual Bonus
6.1 Example 1
6.2 Example 2
6.3 Advantages of Annual Bonus
6.4 Disadvantages of Annual Bonus
7. Gain Sharing
7.1 Example 1
7.2 Example 2
7.3 Advantages of Gain Sharing
7.4 Disadvantages of Gain Sharing
8. Merit Plans
8.1 Example 1
8.2 Example 2
8.3 Advantages of Merit Plans
8.4 Disadvantages of Merit Plans
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.
When we suggest triggers or factors that create the promotions or progress of employees in the working environment then almost every employee would immediately think of a high salary and incentives. Incentives, enthusiasm or interest causes a specific action or certain attitude in an organization.
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.
Incentives features can be mentioned as follows:
Incentives or benefits are based on a standard individual performance
These can be measured according to in monetary term
Benefits deliver motivation employees for their better performance
Incentives do direct linkage to performance
Incentives varies individually and timely
As we can see now, incentives and 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.
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. In this advanced era, many business managers are not aware of the effects that awarding incentives and compensation can have on their business revenue, its important that they learn and understand the elements that create positive motivation in the company. 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 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 these kind of internal business strategy plan to acquire corporate goals.
Motivating 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. In case of absence of these rewards in any company, it's a major issue for managers and also directly associated with employees who see no value in the work that they do or see no reason to obtain the goals set for them. 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.
Source ; http://www.hr-guide.com/data/G446.htm
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 it's 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.
Example 1 of ESOP
No doubt Infosys Technologies has got fame in very short time in field of information technology. It is an international IT firm, based in Bangalore, India with more than one 100,00 employees. Infosys Tech is first ever Indian organization who started giving ESOP plan to its employees. Firm also gave this benefit even to drivers working there. This company have made many Indian's lifestyle to millionaires in 1990 through their plan. The company had allotted 750,000 warrants of ESOP to the Infosys Employee Welfare Trust for its first ESOP in November 1994. Most of these warrants already have been assigned. Nearly 1,200 workers are currently getting benefits by the ESOP scheme. Infosys Tech had started their current financial year with a balance of 488,000 shares which were available for their future grants under ESOP. New ESOP has to be approved by the company's shareholders. Their employees paid Rs 100 per share to convert their ESOP warrants into shares of the company. Company has also received government permission to issue dollar-denominated stock options.(indiatimes 2004)
Example 2 of ESOP
In Hawaii, Aqua hotels and resorts are international tourist attraction place for visitors all over the world. Like other good organizations Aqua hotels and resorts provide ESOP plan to their workers. Among Hawaii's other hotel companies, Aqua Hotels and Tourist Resorts which is Waikiki-based, has changed into the country's first hospitality chain under employees. 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. Paulin's family have agreed to share thirty percent of their company.(encyclopaedia 2008)
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
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
A company who shares some of its profit with its staff is called Profit Sharing. Compensation of staff can be stocks, bonds, money, and also can be immediate or deferred until retirement. It also permits for changing contributions each and every year. 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. Profits sharing's contributions, earnings can also grow tax-deferred until withdrawal.
Example of Profit Sharing
In 1914, Andersen Corporation introduced a generous profit sharing tradition. Company released news, that it would not share profits from year 2009 with its employees. Andersen had a profit in year 2009 that profit was down from previous couple of years. Over the previous few years, profit sharing had been coming down. Profit sharing had been at twenty percent of salaries for 2006-2007, but somehow dropped to 6.5 percent of salaries after year 2008. Anderson Corporation, a private company based in Bayport, has done several deductions over the last few years. The company permanently cut down 250 management and office positions in last July, nearly half of which came from the Bayport. Andersen's other plants also cut some other jobs. That was the second cut down which was permanent, at the Bayport offices in 2009. Third significant reduction happened at the plant in the previous four years. Company cut donw about 400 production workers in year 2007. Profit sharing terms have been extra ordinary generous in the past history. Workers got profit sharing cheques equaling 84 percent of their annual salaries In the year 1987.
Example of Profit Sharing
In Cheyenne, Wyoming, USA, Environmentalists are raising concerns about an implementation in National Park Service policy, which will make parks to share some profits from research. Many groups, included Public Employees for Environmental Responsibility predict the plan would not be practical, unreasonably expensive, compromise resource protection and ethical rules and regulations. Another problem is bio-prospecting or searching for organisms with uses in all chemistry and medicine fields. Bacteria was discovered in Yellowstone, National Park that did DNA tests more professional. 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.
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
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
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. Typical Scanlon plan adds a worker suggestion program, formula-based bonus system and a committee system. Simplest equation is: base ratio = HR payroll costs then divided by net sales or productivity value. A Scanlon Company is classified by teamwork and worker participation. 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.
Example of Scanlon
U.S. Vision is a New Jersey based giant American optical insurance firm. It was announced that U.S. Vision, Inc. has been given award membership to Scanlon Plan Associates. The member organizations demonstrate a commitment to worker involvement and betterment for customers, investors and employees.
William A. Schwartz, who is President and CEO of U.S. Vision, Inc. gave comments that company is more than pleased to be honor regarding membership to SPA. This association has existed for more than 35 years and has gained employee intervention, motivation awards and open book management system. It provides chances for companies to get benefit these applications in view to help organizations become worldwide leaders within their relative industries and firms.
Company said that it has opened thirty seven new locations this versus three in the same period last year. Company also notified that it is firmly on its way to gain its accelerated store expansion scheme of opening one hundred new stores over an 18 month time period.
CEO also added they are rapidly spreading their store locations in way to get benefit of the attractive demographics within the industry. With the result of highly productivity optical locations and huge selection of branded merchandising, they are well-positioned to secure additional store locations.
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
Disadvantages of Scanlon Plan
Equal bonus cannot give exact idea of individual performance
It can take some time period to grow in large organizations
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.
Example of Annual Bonus
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. Bank announced pay for executives year 2010 which were discussed thoroughly with board of directors. Executive directors would have pay which is performance-based totalling £ 4.17 million. Boardroom remunerations, which increased by seventy seven percent from 5.6 million to 9.9 million, for formal directors and non-executive directors. Under incentive plan, awards for executive directors were given to between 150 percent and 185 percent. Truett Tate had the most biggest award, who is 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.
Example of Annual Bonus
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. Fund manager explained for several years that pay had been frozen. Chiefs of Britain's highest fund based institution fund management who are responsible for policing payments at Britain's biggest companies, has gone under mounting scrutiny. Chief Executive, Standard Life Investments, Keith Skeoch, emerged as the highest-paid director, collecting a £ 1.65 m cash bonus on top of his £350,000 basic wages. Chairperson association of British insurers standard life, Mr Skeoch, said that his bonus affected the heavy performance of Standard Life Investments.
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
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
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.
Example of gain sharing
Paying physician's incentives with new experiment for use of best products is under consideration in Healthcare department, New Jersey, USA. Vice President, Strategic Initiatives In Healthcare, Thomas MacVaugh, New Jersey based firm which is specializing in change management, also refereed there are aspects to this approach which is concerned to Gain Sharing. 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.
Example of gain sharing
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.Â Main elements of the exception include are as follows,
Only hospitals may offer P4P (pay for performance) or gain sharing programmes.
Only hospitals physicians or qualified people in physiotherapy organizations can apply in a program.Â In this exception cash or cash alternative methods of payments are covered.
This arrangement term must be from one and three years or between of this duration.
Arrangement has to be a target performance which is an objective, verifiable, etc..Â This arrangement must have all past pay for performance or gain sharing benefits.
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. Even this is somehow bit complex, it helps hospitals and physicians in clearest way to guidance.
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
Disadvantages of Gain Sharing
It can be overall complicated and rough
Its needs intense look after to measure workers performance
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.
Example of merit plan
Deland, Florida, USA. Volusia County teachers and support workers wanted Charlie Crist to stop a controversial bill which would change teachers wages and incentives. Teachers association took a rally against him at the same time where merit pay and tenure bill was under debating. Republican legislation leaders supported that bill Association is expecting Christ to kill it. Association's president Andrew Spar said that teachers wages and benefits is concerned with students 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. Teachers who attended the rally were also concerned about their bill plans to link with student test grades. English Teacher, Lisa Alexander, added some students learn at slower speed and some at fast so in sense to make preparation students exam preparation, teachers wages should be increased.
Example of merit plan
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, consequently this would make easy instructor's job easy.
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
Disadvantages of Merit Plan
Difficult to define, would behavior would be compensated
Poor relationship between supervisors and workers
Improving quality, production, performance, motivation with rewards is a method that is most common when businesses rely on quantity of employee's output.Â 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.