There are two major types of
company wide incentives, they are: Employee Stock Ownership Plans (ESOPs) and
profit sharing. Employee stock ownership plans (ESOPs) are company wide plans
which a corporation contributes shares of its own stock-or cash to be used to
purchase shares of the firm’s stock for employees accounts, and distributes it
to employee upon retirement or other separation from service.
Research suggests that ESOPs do
encourage employees to develop a sense of ownership in, and
commitment to the
firm. They do so in part because the ESOPs provides increased financial
incentives, create a new sense of ownership, and help to build team work (Smith
et:al; 1990).
Some of the advantages of ESOPs
are:
v
Employee stock ownership is an effective
motivating employees to work harder.
v
It is a way of encouraging employees to invest
and to save for the rainy day.
v
The concept of employee ownership is a kind of
“people’s capitalism”.
v
It gives employees a piece of the action, by
making them participate in the sharing of the company’s fortune.
Criticisms against Employees
Stock Ownership
v
The employee’s stock ownership is a big risk for
retirees, as the value of pension fund assets is tied to how well the company
performs.
v
Employees may be ‘forced’ to join, thereby
placing their financial fitness at greater risk.
v
In the practice of employee stock plan, the
employee’s wages/salaries and retirement benefits are determined on the performance
of the organization (Chukwu, 2006).
v
Profit sharing: This pay plan, pays a portion of
company’s profits to employees, separate from base pay, cost-of-living
adjustment or permanent merit pay increase. There are two main types of profit
sharing in practice, viz:
i.
Current profit sharing plan, which awards cash to
employee, typically on a quarterly or annual basis.
ii.
Differed profit sharing plan, which awards in the trust
accounts of employees. These trusts are set aside on employees’ behalf as a
source of retirement income.
iii.
Ford Motor Co. of USA
introduced a profit-sharing plan for salaried employees and General
Motors increased its profit-sharing payout when profits improved (Ford Motor
1998 and General Motor, 1998).
A research study by Leblanc and Mulvey
(1998) that focused on nearly 1,500 full time employees across the United
States found little support for team-based pay and strong preference for
permanent pay increases for individual performance. This led the researchers to
conclude that: workers lack of interest in team pay implies that employers are
simply not rewarding teams as effectively as they could.
Finally, an empirical report
study carried out in Spain by Price Water House and Crown Field in (1990 and
1991), showed that more than 50% of the respondents in 1990 study and 60% in
1991 study have introduced more flexibility in their pay systems, within three
(3) years preceding the two studies. The research also revealed that the
popularity of this variable pay plans is incumbent on its capability to
increase productivity.