RegalEagle
Professional
Deepgupta81
Hr Consultant

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This an old article that was mailed to me. Do let me have your feedback.

Employee Ownership Goal Share (EOGS) programmes are a creative alternative to ESOPs. Business unit performance is the focus of business processes involving goal sharing. It typically deals with setting and measuring goals for individual business units and suitably rewarding employees. Nature of the goals could vary from improvements in financial performance, quality, customer satisfaction or simply process improvement.

Goals should be fair and aim to stretch performance beyond previous targets for successful implementation. Akin to an ESOP programme, goal sharing also involves direct employee participation in the decision-making process thereby determining the outcome and the level of rewards.

The initial design process is a common feature of both ESOP and EOGS programmes and addresses certain strategic issues relevant to both programmes:

* Defining short and long-term results to be achieved

* Identifying employee efforts and behaviours thereby facilitating the process of achieving defined results

* Identifying eligible participants

* Aligning the programme with the existing compensation strategy

Clearly defined programme objectives are imperative for the success of an EOGS programme. They facilitate and provide a clear justification for its existence and define the expected results.

Unlike an ESOP, where the focus is to provide employee benefits directly related to the value in terms of stock value, traditional goal sharing aims at improving a specific business unit's performance. The EOGS objectives combine both. Under an EOGS plan the eligible employee benefits from the overall organisation's financial success. Improving unit-based and organisational operational outcomes is the focus of goal sharing. The main difference between the traditional goal sharing and EOGS is that in EOGS cash rewards are equivalent to stock.

Apex International, a consumer durables giant, has developed an EOGS programme, where it issues "Performance Award" certification every year. The awards are based on the exceeding specific predetermined targets. Three levels of achievement are defined:

* Minimal acceptable level of accomplishment

* Expected level of accomplishment

* Optimum level of accomplishment

A percentage of the employee's base pay determines the award value. For example, 10% of base pay equates to the minimal level of achievement, 20% equates to the expected level and 30% to the optimum level of achievement.

Awards under the EOGS programme are governed by a three-year "vesting" schedule. In the first year or at the time of award grant the certificate can be cashed in for one-third of its value, in the second year an additional one-third can be cashed in. In the final or third year the remaining 33% can be cashed in. For a specific year's deferred payouts to occur margin targets must be met in the following years.

A balanced scorecard approach should be used to establish objectives. Unlike ESOP, a specific goal related to unit outcomes, quality, customer and financial growth, and human resource improvements is reinforced in EOGS.

After having met the primary circuit breaker funding targets, the distribution is based on the achievement of balanced scorecard goals. Every missed scorecard goal reduces the deferred payouts by 20%.

The concept of employee ownership goal sharing breeds an ownership culture in the organisation. It links employee actions to organisational strategic outcomes. This results in employee empowerment through participation.

Hi,
Thanks for sharing the information of EOGS. However, it seems similar to a deferred incentive plan. Further, I dont think tying the award size with base pay is a good idea since base pay is different for different employees and sometimes depends on company policy. The employee should not be penalized / overcompensated for having a low / high base pay.
Would appreciate your views on this.
Regards.
Deepti

Yes i think your rite... the percentage should not be on the base pay as it is different with every employees at different levels. It should be in any other form what so ever would be beneficial and fair for all in general.
BUt yes EOGS is definitely a good strategy as a tool to motivate employees on better performance especially at entry level or middle manangement level,where ESOP may not be very much attractive.
Regards
Kalpana.

Kalpana,
I agree with your views but do you think this plan should be equated with ESOPs? ESOPs' motivational value lies in owing a share of the company. The same does not apply to EOGS.
The lure of rising company value and the consequent rise in the value of ESOPs help an employee in remaining in the company. However, in the case of EOGS, there would be no possibility of increase in reward beyond the predesignated limit, though the reward size might decrease!
Given the current trend of 'job hopping' among the employees, do you think EOGS would retain employees' interest, esp. junior and middle level employees?
Regards,
Deepti

HI Deepti,
Yes your right,EOGS may not be a right tool of retention for employees especially with the current trend of too many Job Hoppers. But neither Esop is a better retention strategy.I am working in a start up company based at Chennai.We give stock options to all employees at all levels.The vesting period here is 4yrs. This does not make any sense to employees at the entry level or mid level as they shift job quiet often with in 2yrs. Neither are they convinced with this long term wealth creation package that we offer as they are more intersted on fixed package than a long term benefit.
IN this case do you think ESOP is a right retention strategy ??
Regards
Kalpana.

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