that are less influenced by external factors. Employees in a gainsharing plan can receive
incentive awards even when the organization is not profitable.
Gainsharing was initially popular only in large unionized manufacturing compa-
nies,^80 such as Montreal-based Molson Coors Brewing Company and Montreal-based
Hydro-Québec. This has changed in recent years, with smaller companies, such as
Delta, BC-based Avcorp Industries, and governments, such as Ontario’s Kingston
Township and Town of Ajax, also introducing gainsharing. Gainsharing has been found
to improve productivity in a majority of cases and often has a positive impact on
employee attitudes.^81Organizational-Based Incentives
There are two major forms of organizational-based pay-for-performance programs:
profit-sharing and stock option plans, including employee stock ownership plans.Profit-Sharing Plans Aprofit-sharing planis an organization-wide plan in which
the employer shares profits with employees based on a predetermined formula. The
plan can distribute direct cash outlays or stock options. Though senior executives are most
likely to be rewarded through profit-sharing plans, employees at any level can be recip-
ients. For instance, IKEA divided every penny rung up in its 152 stores on October 8,
1999, among its 44 000 staffers in 28 countries. This amounted to $2500 for each
employee.^82
Be aware that profit-sharing plans focus on past financial results. They don’t neces-
sarily focus employees on the future, because employees and managers look for ways to
cut costs today, without considering longer-term organizational needs. They also tend
to ignore factors such as customer service and employee development, which may not
be seen as directly linked to profits. In addition, employees who work in companies
in cyclical industries would see inconsistent rewards in such a plan. For example, a
financial services company would offer few or no rewards during slumping economic
periods, and substantial rewards during times of economic growth. Fluctuating rewards
may not work for all employees. Employees at St. John’s, Newfoundland-based Fishery
Products International were quite upset when the $750 profit-sharing cheques they
received in 2000 were reduced to just 10 percent of that for 2001 because of lower prof-
its. Allan Moulton, a union representative of the employees, said, “It’s extremely hard for
[employees]...to see that [the company] realized profits, and they expected to see
some benefits from the profits they generated.”^83Stock Options and Employee Stock Ownership Plans Some companies try
to encourage employees to adopt the values of top management by making them own-
ers of their firms. The idea is that employees will be more likely to think about the con-
sequences of their behaviour on the bottom line if they own part of the company.
Employees can become owners of the company either through being granted stock
options or through an employee stock ownership plan (ESOP).^84 Stock options give
employees the right to buy stocks in the company at a later date for a guaranteed price.
ESOPs are company-established benefit plans in which employees acquire stock as part
of their benefits.
Canadian companies lag far behind the United States in the use of ESOPs because
Canada’s tax environment is less conducive to such plans. More recently, both the dot-
com meltdown and the high-tech meltdown have made employees more reluctant to
accept stock options instead of cash. Lisa Slipp, head of executive compensation at
Toronto-based consulting firm Mercer Human Resource Consulting, notes that “people
are recognizing the reality of stock options, that they are attractive in an up market and
less so in a down market.”^85128 Part 2Striving for Performance
employee stock ownership plan
(ESOP) A company-established
benefit plan in which employees
acquire stock as part of their benefits.
Mercer Human Resource
Consulting
http://www.mercerhr.com
profit-sharing plan An organiza-
tion-wide plan in which the employer
shares profits with employees based
on a predetermined formula.
IKEA Canada
http://www.ikea.ca