These schemes are tax efficient ways of rewarding people. A number of Revenue rules must be observed. Companies have typically reached specific agreement with the Revenue along the following lines:
- Maximum investment is ?10,000 per year.
- Maximum foregone salary is 7.5% of basic pay including shift premium. Salary forgone must be at least matched by bonuses invested.
- No discount on shares at the time of purchase.
- Shares must be held for at least three years to ensure no income tax is paid.
- Capital gains tax will be payable on any gain in share value if the total gain exceeds the Revenue tax free allowance limits.
A number of the survey companies use approved profit sharing schemes very effectively. The objective is:
- To link variable pay to company profitability and
- To help align employee and company goals
These schemes are particularly attractive where shares are rising in value. Examples of the gain to be achieved by opting for the APPS (Approved Profit Sharing Scheme) provided to employees. In the case of one company, the example provided estimates a net income of ?1600 after 3 years for an initial after-tax investment of ?250.
Another company operates a profit sharing scheme whereby the company distributes a proportion of the company?s profits to trustees for the purpose of buying shares in the company which are then distributed to employees with a minimum of two years service. Operators may purchase 500 shares, supervisors 2000 shares and so on. One third of these will vest in each of years 3, 4, and 5. The employees may exercise their options when they vest, at the price which applied on the date the option was granted. The employee makes a gain where the share price has risen. The whole process is repeated every five years. The objective is to help align employee objectives with the company objectives. The company has found that employees have definitely become very aware of share price movements, and that the effect is positive.
The area of performance management was probably the area where differences between comapnies were most noticeable. At one end of the continuum were two companies which had quite elaborate systems in place linking corporate, departmental, group and individual goals and objectives and with formalised and well developed performance appraisal processes in place. At the other end of the continuum were two companies which were considering the introduction of individual appraisal or who admitted that the process in place was not functioning too well. What were the main characteristics of the former?
- Company, departmental and individual goals were aligned.
- Performance appraisal was formally carried out at least annually
- Every manager / supervisor is required to seek 360 degree feedback about each employee reporting to him or her including the employee himself / herself, customers and peers.
- Employees were evaluated according to
- their performance in their own job
- contribution to the team
- development needs for the future
- rate of change in performance relative to peers over time
- appropriate compensation
- The evaluation process employed a number of comparisons including
- Ranking whereby employees in a particular rank group ( e.g., maintenance technicians ), and covering a number of grades were placed in rank order ( e.g. quartiles ) according to performance on the factors outlined above.
- Rating on similar dimensions using the same category where a person?s immediate boss rated him/her in respect of people within the same work group using categories such as "outstanding", "satisfactory" and "improvement required".
- Rate of change in performance ( improvement or disimprovement ) relative to peers over time.
- Development plans for individuals linked to business needs and measures of success put in place within specified time frames. Performance improvement plans were drawn up for employees whose performance was deemed to be less than satisfactory.
As may be imagined such an approach to performance appraisal takes considerable thought, training and support. The companies concerned considered it as fundamental to rewarding achievement, identifying high performers, linking reward to performance. Interestingly it was practiced throughout the companies concerned.
The survey of the 10 companies bore out IPC experience in its work with client companies. Increasingly, pay progression and reward is being linked to a formal performance appraisal, which is sometimes carried out twice each year.
This is especially so of US multinationals. Irish owned companies are less likely to create this link, preferring to focus on training needs and career development. Other research ( Morley and Gunnigle 1997 ) has shown that only 30% of manual employees are subject to an appraisal system, as against 70% of managerial employees.
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