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EMPLOYEE PARTICIPATION.
Term Paper ID:19532
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Focuses on corp. organization, operations, economics. Focuses on employees stock ownership.... More...
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Paper Abstract:
Focuses on corp. organization, operations, economics. Focuses on employees stock ownership.
Paper Introduction:
Companies can be organized in a variety of different ways: corporations, partnerships and proprietorships. In addition, there are many different levels at which employees can participate in the day-to-day operations of an organization. Some companies maintain a simple employer-employee relationship in which workers receive compensation only for the jobs they do and in which profits are retained or distributed to the company's owners. Other companies provide some type of ownership through stock, while still other companies share the risk and benefit of the organization with employees. This research examines various ways in which companies can be organized, with particular emphasis on employees stock ownership plans (ESOPs). The perspectives of management and prospective employees are both considered.
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This period can be characterized by an increase in theskill and education level of the employee. One way that companies are changing this is by establishingEmployee Stock Ownership Plans (ESOPs). Not all employees move through this progression, but theincrease in ESOPs and employee-owned organizations is indicative of thegrowing number of individuals who do so (Kochak 8 ). Management and owners, on the other hand, are concerned with profits. Some companies maintain a simple employer-employee relationship in which workers receive compensation only for thejobs they do and in which profits are retained or distributed to thecompany's owners. "Employee Stock OwnershipPlans." The Tax Adviser (January 1991), 4 -49.----------------------- 1 Prospective employees must determine how much participation they wantto exercise when deciding the type of organization they want to work for.Individuals who depend on a steady paycheck with regular increases are lesslikely to thrive in a workerco-operative where participants may be required to forego regular increasesfor the good of the company as a whole. Generally, distributionof the profit sharing plan is based on the individual's salary. Learning to balance those risks with thebenefits leads to organizations which meet both their company and employeegoals. Such a program must take into account the age distribution ofthe workforce, how long employees are expected to remain with the company,and the expected level of vesting each employee will have accumulated atthe time of separation (Block 18). There are other factors which need to be considered when decidingwhat type of organization to put into place. Thepartnership agreement could be carefully drawn up to balance the cashcontributions of some partners with the contributions of expertise of otherpartners. The business operations of a sole proprietorship are considered anintegral part of the personal activities of the owner. Here, the employee recognizes that his contribution issignificant, just as the managers' contributions are significant, and theemployee may seek a company which offers profit sharing or ESOPs as a wayto demonstrate the recognition of the employee's importance. Profit sharingplans are used to provide incentives to employees to stay with the companyand to work effectively; however, since there is no guarantee that therewill be a distribution from a profit sharing plan in a given year, it isquestionable as to whether the plans work to keep employees at a companylonger than at companies which do not have such plans. The owner (defined in this case as theindividual who organizes the company from the beginning) must then decidewhat sort of ownership organization should be put into place. Upon separation, the ESOPor company may repurchase the participant's shares or issue stock directlyto the participant, depending on the ESOP in question (Theisen and Kleiman48). Golden, CO: Fulcrum Publishing, 199 .Schumacher, E.F. New York: Harper and Row, 1973.Stoner, James and Charles Wankel. The stock is distributed to the employee upon separation(voluntary or otherwise) from the organization. America West andAvis Rent-A-Car are two prime examples of this type of company. Several alternatives have arisen as a result of the acrimony betweenmanagers/owners and employees. Finally, the employee may evolve into an owner-employee who seeks toreap the benefits of ownership while accepting the risk level whichaccompanies those benefits. The perspectives of management and prospectiveemployees are both considered. If the partnership does well, all partners benefit; if thepartnership does poorly, all are liable. At the same time, employees are also likelyto remain with a company where they have an ownership position, and theexperience and expertise they bring to the company as a result of theirextended period of service benefits the company as a whole (Stoner andWankel 42). Giftsof stock to children enables owners to avoid income and estate taxes, andthe organization of a corporation enables family members (for example) toparticipate without the restrictions of family partnerships (Ibid. Suchorganizations arise when a group of people organize their efforts based oncommon experiences and expertise, and when no one individual is putting upthe bulk of the capital or performing the bulk of the work. Programs such as ESOPs and gainsharing give each employee a personal stake in the financial well-being ofthe company. 43). This research examines various ways in whichcompanies can be organized, with particular emphasis on employees stockownership plans (ESOPs). Therationale behind this strategy is that employees who are also owners aremotivated to work in a productive manner, and work to keep each other ontrack. Lasser Tax Institute. New York: McGraw-Hill, 1989.Liebig, James E. Similarly, the organization which is bestsuited to any given individual depends on the personal goals of theindividual, and where that individual is in his career path. Employees may purchase shares of publicly traded companies; someemployees are eligible to purchase shares of privately held companies.This last option is often part of a management incentive program. 16). In some cases, employees have formed theirown organizations in which each worker is also an owner. In these situations, employees (labor) are concerned withregular paychecks, everyday benefits such as health insurance, andmaintaining a high degree of job and environment satisfaction. Such measures have resulted inthe formation of labor unions and the rise of the worker empowermentmovement. For theseemployees, long-term stability with minimum risk is the hallmark of a goodcompany. Profits may be reinvested in the corporations, orissued to stockholders in the form of dividends (either in stock or incash). How to Run a Small Business. The partnership agreement determines how much liability each partner isresponsible for; however, as with a sole proprietorship, the partners arepersonally responsible for the liabilities of the business (Ibid.). Owners of new companies must decide at the beginning how they want toorganize the enterprise. These companies are likely to recognize the contributionof the individual worker, and may provide an atmosphere where the highlycreative and innovative employee can thrive. Wilmington, DE: Idea House Publishing, 1991.Kochak, Jacque. Inorder to accomplish this, the company must establish a cash flow managementprogram with anticipated distributions from the time that the ESOP isestablished. Corporations are liable for their ownliabilities; owners generally are not held personally responsible for theliabilities of the organization. In addition, corporations may providefringe benefits in the form of accident, health and life insurance. Simply considered, minimizing costs and maximizing revenues enable thecompany to realize the most profit. Partnerships and sole proprietorships may incorporate if desiredand if their tax situations warrant. They also offerconsiderable tax benefits. Forexample, all employees might receive four percent of their annual salary,or some other similar calculation technique might be used. Works CitedBlock, Stanley. Partnerships come into play when two or more people decide to conductbusiness together. However,most employees are unable to participate in the ownership of privately heldfirms. A profit sharing program,or an ESOP, helps to recognize that all members of an organization aresignificant contributors to that organization's success or failure. This type of business is thesimplest to organize since no special permission or legal papers arerequired (although some business name forms may be required in some areas). For example, ESOPs carry withthem financial obligations on the part of the company. Such an atmosphere is likelyto contribute to the long-term success of the organization as well as tothe short-term success of the individual at hand. Generally, partnerships have legal agreements drawn upamong the partners which clearly define the rights and obligations of each. Traditional compensation strategiestended to favor managers with stock option programs and salary incentives.Such techniques implied that managers were more valuable to the companythan the line staff who performed the work itself. Under these plans, a certain percentageof a company's profits are set aside for distribution to employees.Employees do not incur any liabilities if the company does not do well, butthey are rewarded when the company shows a profit. In addition to the short-term cash rewards, employees arelikely to be more creative in their approaches to problems andopportunities which arise in the workplace, and may take on additionalresponsibilities which enable the company to realize additional benefit.There is also the issue of fairness. Companies can be organized in a variety of different ways:corporations, partnerships and proprietorships. Similarly, individuals in theseorganizations may be personally liable for the liabilities of the company,and that may be a level of risk which some individuals deem unacceptable. Other companies provide some type of ownership throughstock, while still other companies share the risk and benefit of theorganization with employees. "ESOP's Fables." Restaurant Business (November 1, 1991) , 8 -81.J.K. There hasbeen a movement in recent decades in American industry toward profitsharing and ESOPs, which reward employees above their salary or wages, butthese benefits have some element of risk associated with them, both for theemployee and the company. After this initial phase, the employee may begin to expect to berewarded above his wage or salary for his Contributions to theorganization. Management. Lasser..." 4 ). Shares in publicly held corporations may be sold or transferred onexchanges such as the New York Stock Exchange; financial information aboutthese companies is readily available and the companies are subject to therules and regulations of the Securities and Exchange Commission (SEC).Shares in privately held organizations are not for sale to the generalpublic, and financial information about these companies does not have to bedisclosed publicly. The optimum organization type depends on the industry, the type ofemployee and the owners' goals. There are likely always to be some individuals who do not want totake an active role in the strategic direction of their company. The company could be organized as a partnership in which all partnersshare equally or equitably in the distribution of profit and losses. Incorporation rules varyfrom state to state, and the company does not have to be located in thestate under which it incorporates. Business Ethics. "The Advantages and Disadvantages of ESOPs: ALong-Range Analysis." Journal of Small Business Management (January1991), 15-21.Breton, Denise and Christopher Largent. Traditional corporations can establish an owner versus employeeattitude. During the initial part ofhis career, when he has little experience in his field and is unfamiliarwith the business world, he may be content to allow the professionalmanagers to guide his employment destiny and to perform his job to the bestof his ability. Individuals who are highly skilled and who are dedicated to theiremployment may want to work for companies which offer gain sharing orprofit sharing. Since managers oftencame from within the ranks of the workers, this strategy led todifficulties between line workers and managers, with bad feelings on bothsides. The Soul of Economies. Employees may be willing to forego short-term benefits if theyanticipate long-term returns. The most basic form of business is a sole proprietorship, in which asingle person owns and operates the business. The owner ispersonally liable for the business debts; creditors can force payment ofbusiness liabilities from the personal assets of the owner ("J.K. When employeesleave the company, organizations have a set period of time during whichthey must repurchase the employee's ESOP or distribute the investment. It is entirely possible that an individual may move through each ofthese phases during the course of his career. A workers' co-operative is a specific type of partnership in whichthe workers of an enterprise actually own the enterprise as well. corporations offer the most tax benefits, but alsorequire the most initial investment and legal services. Typically, corporations issue a given number of shares in theorganization; each share is worth an equal fraction of the corporation as awhole. Some managers were of the opinion that workers were out to takeadvantage of the company, while workers were of the opinion that managersexploited the laborers (Breton and Largent 112). Such individuals do not expect to share in the short-term profit,nor do they expect to be affected by long-term downturns. Englewood Cliffs, NJ: Prentice-Hall, 1986.Theisen, Barbara and Robert T. Thus companies can be incented to keepsalaries low and refrain from improving working conditions if the impact onshort-term profits is negative (Ibid. In addition, salaries can be paidto individual employees under such an agreement. Profit (or gain) sharing plans are another way in which employees canbenefit when a company does well. Small is Beautiful. Corporations are considered separate legal entities and are createdby filing certain legal documents with the state. So long asthe company remains somewhat profitable, the employee maintains hisstandard of living (Liebig 15). Under these programs, companiesset aside a certain block of stock which is purchased by the ESOP.Employees are then able to purchase shares of the ESOP (rather than directshares of stock). Theseindividuals leave the strategic planning and implementation of that plan tothe professional managers, and the employees are content to perform theirjob as is expected of them. Motivation increases if employees recognize that they stand tobenefit from the profits a company makes. Companies which do not offer some type of profit sharing, ESOP orgain sharing program are rapidly becoming rare entities as managers andemployees alike recognize the power of the motivation such programs provide(Schumacher 2 ). In addition, there aremany different levels at which employees can participate in the day-to-dayoperations of an organization. Kleiman. The experience and education which theemployee has gained throughout the previous two phases of his career arenow used to the benefit of the organization in which the employee has apersonal stake. Traditional corporations consist of owners who put up the capital andwho risk losing the capital, and employees who work for a stated salary orwage.
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