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Incentive plans
These are plans set up by the employer to motivate the employees in an effort to boost their production and performance. The incentive plans help make the employees feel as part and parcel of the business thus making them work hard. There are many types of incentive plans that are useful in making the employees attached to the company. The incentives come in different forms and can either be stock options or profit sharing.
Stock Options
The stock option incentive plans are plans that the employer makes to offer the employees with a chance to make investments in to the company stocks. The employees purchase part of the business stock, which acts as a motivator to work hard to make the company or business more productive, than when they are not part of the business. The stock offer gives the employees to hold a real stake of shares in the business.
The employees get the chance of sharing the benefits from his or her work as part of the shareholders. The employers set a performance target for the employees, and those who meet the set targets become part of the stakeholders. This plan is beneficial to both the business and employees as both get the chance to reap the benefits of their hard work, (University of Michigan, 1981).
Advantages of stock offer to the business
The company gets its dividends payment in accordance to its performance in the market in relation to other competing businesses. Therefore, an increase in performance of a business means that it will receive more dividends compared to one whose performance is low. The business gains more profits also, as the employees are willing to go further in their efforts to achieve the set targets.
The business owner is also sure that the employees will put in more efforts as they are a part of the business and their future depends on the success of the business. The stock offers also ensure that the employees stay in the company long enough, therefore, reduces the chances of having to constantly replace employees.
Disadvantages to the business
The company has to set aside money for giving the employees a stock option in the company. The company is at a risk if the employees do not work hard enough to achieve the target.
Advantages to the employees
The employees can gain a lot of money from the stocks if the market prices favor their company’s stocks. The employees also get a chance to get a share of their hard work, (Kracklauer, Mills, Dirk, 2004).
Disadvantages to the employees
The employees have to put in a lot of efforts to meet the target, and they have to wait for a long time to achieve this. This ties the employee with the company for a long time depriving him or her, the chance of moving to greener pastures.
Profit Sharing
This is an incentive plan for the businesses puts aside parts of the pre taxed profits and then share it out to the employees. The employee must meet the set conditions that will allow him or her to receive part of the profit. The common condition will be meeting target and having served in the business for a certain period, ( Fullerton, 2006).
The mode of payments differs from one company to the other, and some of them put the money into the employees’ retirement funds. The other form of payment is the calculation of the period one has been in the company, which helps in the calculation of the profits. The other form of payment is one that gives shares of the profits depending on the position held by the employee.
Advantages to the business
The company’s profits increase because the employees work hard to make more profits, which in turn will increase their shares of the profits. There is also a reduced risk of employees quitting to go work in other companies because they know that their efforts are the ones that will boost their earnings.
Disadvantages
However, most of this plans do not work because they companies spend lees amounts of money on investments. This leads to a reduction in the profits earned which later on leads to losses. The problem with the plan is that it will not keep the earnings of the company steady, because it will keep on fluctuating according to the performance of the employees. The company is at a risk of losing focus on their set objectives and targets. This is because the employees will work hard to achieve maximum profits, and not to meet the company’s targets.
Advantages to the employees
It unites the employees and employers as they work together to achieve their set goals. It also increases the levels of motivation, which in turn would increase the earnings of the employees making their lives comfortable. All this will lead to further improvement in performance as the employees are sure of a good salary. It also acts as a bridge between the employee and the employer, which makes the employer feel at ease with the company.
Disadvantages of profit sharing
The employees will not receive a consistent earning which makes planning for their personal expenses difficult. The employees will receive appreciation from the employer due the profits earned and not on their value as quality employees.
Bibliography
Fullerton, S. (2006). Sports Marketing. Pennsylvania: McGraw-Hill.
Kracklauer A. H., Mills, D. Q., & Dirk, S. (2004). Collaborative customer relationship management: taking CRM to the next level. California: Springer.
University of Michigan. (1981). Administrative management. New York: Geyer- McAllister Publications.
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