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Employee Ownership Goal Share (EOGS) programs 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. The 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 program, 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 programs and addresses certain strategic issues relevant to both programs:
- Defining short and long-term results to be achieved
- Identifying employee efforts and behaviors thereby facilitating the process of achieving defined results
- Identifying eligible participants
- Aligning the program with the existing compensation strategy
Clearly defined program objectives are imperative for the success of an EOGS program. 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 organization's financial success. Improving unit-based and organizational operational outcomes is the focus of goal sharing. The main difference between 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 program, where it issues "Performance Award" certification every year. The awards are based on 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 program 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 organization. It links employee actions to organizational strategic outcomes. This results in employee empowerment through participation.
From India, New Delhi
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8Employee Ownership Goal Share (EOGS) programs 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. The 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 program, 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 programs and addresses certain strategic issues relevant to both programs:
- Defining short and long-term results to be achieved
- Identifying employee efforts and behaviors thereby facilitating the process of achieving defined results
- Identifying eligible participants
- Aligning the program with the existing compensation strategy
Clearly defined program objectives are imperative for the success of an EOGS program. 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 organization's financial success. Improving unit-based and organizational operational outcomes is the focus of goal sharing. The main difference between 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 program, where it issues "Performance Award" certification every year. The awards are based on 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 program 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 organization. It links employee actions to organizational strategic outcomes. This results in employee empowerment through participation.
From India, New Delhi
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Hi,
Thanks for sharing the information on EOGS. However, it seems similar to a deferred incentive plan. Furthermore, I don't think tying the award size to base pay is a good idea since base pay varies for different employees and can sometimes depend on company policy. Employees should not be penalized or overcompensated based on their low or high base pay.
I would appreciate hearing your views on this.
Regards,
Deepti
From India, Pune
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Thanks for sharing the information on EOGS. However, it seems similar to a deferred incentive plan. Furthermore, I don't think tying the award size to base pay is a good idea since base pay varies for different employees and can sometimes depend on company policy. Employees should not be penalized or overcompensated based on their low or high base pay.
I would appreciate hearing your views on this.
Regards,
Deepti
From India, Pune
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Yes, I think you're right. The percentage should not be based on the base pay as it varies among employees at different levels. It should be in another form that would be beneficial and fair for everyone in general.
But yes, EOGS is definitely a good strategy as a tool to motivate employees for better performance, especially at the entry level or middle management level, where ESOP may not be very attractive.
Regards,
Kalpana.
From India, Madras
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But yes, EOGS is definitely a good strategy as a tool to motivate employees for better performance, especially at the entry level or middle management level, where ESOP may not be very attractive.
Regards,
Kalpana.
From India, Madras
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Kalpana,
I agree with your views, but do you think this plan should be equated with ESOPs? ESOPs' motivational value lies in owning 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 an increase in reward beyond the predesignated limit, though the reward size might decrease!
Given the current trend of 'job hopping' among employees, do you think EOGS would retain employees' interest, especially junior and middle-level employees?
Regards, Deepti
From India, Pune
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I agree with your views, but do you think this plan should be equated with ESOPs? ESOPs' motivational value lies in owning 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 an increase in reward beyond the predesignated limit, though the reward size might decrease!
Given the current trend of 'job hopping' among employees, do you think EOGS would retain employees' interest, especially junior and middle-level employees?
Regards, Deepti
From India, Pune
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Hi Deepti,
Yes, you're right, ESOPs may not be the right tool for retaining employees, especially with the current trend of too many job hoppers. However, neither are ESOPs a better retention strategy. I am working in a startup company based in Chennai. We offer stock options to all employees at all levels with a vesting period of 4 years. This does not make sense to employees at the entry level or mid-level as they often change jobs within 2 years. They are not convinced with this long-term wealth creation package that we offer as they are more interested in a fixed package than long-term benefits.
In this case, do you think ESOPs are the right retention strategy?
Regards,
Kalpana.
From India, Madras
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Yes, you're right, ESOPs may not be the right tool for retaining employees, especially with the current trend of too many job hoppers. However, neither are ESOPs a better retention strategy. I am working in a startup company based in Chennai. We offer stock options to all employees at all levels with a vesting period of 4 years. This does not make sense to employees at the entry level or mid-level as they often change jobs within 2 years. They are not convinced with this long-term wealth creation package that we offer as they are more interested in a fixed package than long-term benefits.
In this case, do you think ESOPs are the right retention strategy?
Regards,
Kalpana.
From India, Madras
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