The lion’s den Project: HR Management By David Edwards The HR Style, and mission Statement The companies’ goals are to hire the best and the most qualified person for each position and we will be recruiting from the following: Employment Agencies College and Universities Job sharing Personal development training in house Strategic planning is where we need to be at the most resourced and fit are mission which excellent customer service and relations with our customers, and make Loyal venders have the best presentation of service and how the food is delivered in a timely fashion. We will be looking at the Pestel Analysis of how we look at the environmental, economic, and technological standards with regards to food delivery and services. Things for the Human Resources Department to at start up job design and analysis , workforce planning , recruitment and selection , training and development , performance management , compensation (remuneration) , and legal issues .
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The lion’s den Project: HR Management By David Edwards
The HR Style, and mission StatementThe companies’ goals are to hire the best and the most qualified person for each position and we will be recruiting from the following:
Employment Agencies College and Universities Job sharing Personal development training in house Strategic planning is where we need to be at the most resourced and fit are mission which
excellent customer service and relations with our customers, and make Loyal venders have the best presentation of service and how the food is delivered in a timely fashion.
We will be looking at the Pestel Analysis of how we look at the environmental, economic, and technological standards with regards to food delivery and services.
Things for the Human Resources Department to at start up
job design and analysis ,
workforce planning ,
recruitment and selection ,
training and development ,
performance management ,
compensation (remuneration) , and
legal issues .
Determine needs of the staff. Determine to use temporary staff or hire employees to fill these needs. Recruit and train the best employees.
Supervise the work. Manage employee relations, unions, and collective bargaining.
Prepare employee records and personal policies. Ensure high performance.
Manage employee payroll, benefits, and compensation. Ensure equal opportunities.
Deal with discrimination. Deal with performance issues.
Ensure that human resources practices conform to various regulations.
Push the employee’s motivation.
Job Design and Analysis
Job characteristic theoryIn situations where multiple new jobs are created and recruited for the first time, or the nature of a job has substantially changed, or the nature of a job has substantially changed, a job analysis might be undertaken to document the knowledge, skills, abilities and other characteristics (KSAOs) required or sought for the job. From these, the relevant information is captured in such documents as job descriptions and job specifications. Often, a company already has job descriptions for existing positions. Where already drawn up, these documents may require review and update to reflect current requirements. Prior to the recruitment stage, a person specification should be finalized to provide recruiters with the project's requirements and objectives.[5] SourcingSourcing is the use of one or more strategies to attract or identify candidates to fill job vacancies. It may involve internal and/or external recruitment advertising, using appropriate media, such as job portals,local or national newspapers, specialist recruitment media, professional publications, window advertisements, job centers, or in a variety of ways via the internet.An employee referral program is a system where existing employees recommend prospective candidates for the job offered, and in some organizations if the suggested candidate is hired, the employee receives a cash bonus. [13] Alternatively, employers may use recruitment consultancies or agencies to find otherwise scarce candidates—who, in many cases, may be content in their current positions and are not actively looking to move. This initial research for candidates—also called name generation—produces contact information for potential candidates, whom the recruiter can then discreetly contact and screen. [5]
Screening and selectionVarious psychological tests can assess a variety of KSAOs, including literacy. Assessments are also available to measure physical ability. Recruiters and agencies may use applicant tracking systems to filter candidates, along with software tools for psychometric testing and performance-based assessment.[6] In many countries, employers are legally mandated to ensure their screening and selection processes meet equal opportunity and ethical standards.[5]
In order to significantly improve the candidate evaluation and selection process, Buettner proposed a recruitment framework for searching online social networks. [2]
Employers are likely to recognize the value of candidates who encompass soft skills such as interpersonal or team leadership.[7] Many companies, including multinational organizations and those that recruit from a range of nationalities, are
also often concerned about whether a candidate fits the prevailing company culture.[8]
Disabled candidatesThe word disability carries few positive connotations for most employers. Research has shown that employer biases tend to improve through first-hand experience and exposure with proper supports for the employee [9] and the employer making the hiring decisions. As for most companies, money and job stability are two of the contributing factors to the productivity of a disabled employee, which in return equates to the growth and success of a business. Hiring disabled workers produce more advantages than disadvantages.[10] There is no difference in the daily production of a disabled worker.[1] Given their situation, they are more likely to adapt to their environmental surroundings and acquaint themselves with equipment, enabling them to solve problems and overcome adversity as with other employees. The U.S. IRS grants companies Disabled Access Credit when they meet eligibility criteria.[11]
Workplace Planning: Environment Scanning is a form of business intelligence. In the context of Workforce Planning, it is used to identify the set of facts or circumstances that surround a workforce situation or event.Current Workforce ProfileCurrent State is a profile of the demand and supply factors both internally and externally of the workforce the organization has today.Transition Workforce Profiledemand and supply factors for the transition from current to the future workforce.Future Workforce ViewFuture View is determining the organization’s needs considering the emerging trends and issues identified during the Environment Scanning.Analysis and Targeted FutureOnce critical elements are identified through quantitative and qualitative analysis, the future targets that are the best fit in terms of business strategy and is achievable given the surrounding factors (internal/external, supply/demand) are determined.Risk Assessment and Risk MitigationThe process is about determining appropriate actions to manage risk assessment and identify risk mitigation strategies to deliver the targeted future.
Recruitment and SelectionAn applicant tracking system (ATS) is a software application that enables the electronic handling of recruitment needs. An ATS can be implemented or accessed online on an enterprise or small business level, depending on the needs of the company, and there is also free and open source ATS software available. An ATS is very similar to customer relationship management (CRM) systems,[verification needed] but are designed for recruitment tracking purposes. In many cases they filter applications automatically based on given criteria such as keywords, skills, former employers, years of experience and schools attended.[1] This has caused many to adapt resume
optimization techniques similar to those used in search engine optimization when creating and formatting their résumé.[2] Almost all recruitment agencies and most major corporations with an in-house recruitment function use some form of applicant tracking system to handle job postings, applicants, resumes, interviews.[3] A dedicated ATS is not uncommon for recruitment specific needs. On the enterprise level it may be offered as a module or functional addition to a human resources suite or Human Resource Information System (HRIS). The ATS is expanding into small and medium enterprises through open source orsoftware as a service offerings (SaaS). The principal function of an ATS is to provide a central location and database for a company's recruitment efforts. ATSs are built to better assist management of resumes and applicant information. Data is either collected from internal applications via the ATS front-end, located on the company website or is extracted from applicants on job boards. The majority of job and resume boards (Monster.com, Hotjobs, CareerBuilder, Indeed.com) have partnerships with ATS software providers to provide parsing support and ease of data migration from one system to another.[4][verification needed] Functionality of an ATS is not limited to data mining and collection; ATS applications in the recruitment industry include the ability to automate the recruitment process via a defined workflow.Another benefit of an applicant tracking system is analyzing and coordinating recruitment efforts - managing the conceptual structure known as human capital. A corporate career site or company specific job board module may be offered, allowing companies to provide opportunities to internal candidates prior to external recruitment efforts. Candidates may be identified via pre-existing data or through information garnered through other means. This data is typically stored for search and retrieval processes. Some systems have expanded offerings that include off-site encrypted resume and data storage, which are often legally required by equal opportunity employment laws.Applicant tracking systems may also be referred to as talent acquisition and management products (TAMP) and are often provided via an application service provider orsoftware as a service (SaaS) model.[6] The level of service and cost can vary greatly across providers. In the UK and Ireland, Applicant Tracking Systems which are specifically for Agency Recruiters are often referred to as Recruitment Software and this is a term used mainly in the recruitment agency industry (representative bodies include the REC in the UK and the NRF in Ireland). Although proprietary systems dominate the ATS space, there are open-source alternatives.As the data held within recruitment software is predominantly personal data, it is often[vague] tightly controlled by data protection legislation, preventing the data from being held offshore, which frequently places a legal restriction on the use of SaaS offerings.
Social recruiting is the use of social media for recruiting including sites like Facebook and Twitter or career-oriented social networking sites such as LinkedIn and XING.[3][16][17] It is a rapidly growing sourcing technique, especially with middle-aged people. On Google+, the fastest-growing age group is 45–54. On Twitter, the expanding generation is people from ages 55–64.[18]
Mobile recruiting is a recruitment strategy that uses mobile technology to attract, engage and convert candidates. Mobile recruiting is often cited as a growing opportunity for recruiters to connect with candidates more efficiently with "over 89% of job seekers saying their mobile device will be an important tool and resource for their job search."Some recruiters work by accepting payments from job seekers, and in return help them to find a job. This is illegal in some countries, such as in the United Kingdom, in which recruiters must not charge candidates for their services (although websites such as LinkedIn may charge for ancillary job-search-related services). Such recruiters often refer to themselves as "personal marketers" and "job application services" rather than as recruiters.
The people who we have has staff must have the following skillsSocial skills are any skill facilitating interaction and communication with others. Social rules and relations are created, communicated, and changed in verbal and nonverbal ways. The process of learning these skills is called socialization.Interpersonal skills are sometimes also referred to as people skills or communication skills.[1] Interpersonal skills are the skills a person uses to communicate and interact with others. They include persuasion, active listening,[2] delegation, and leadership.
Training and developmentTraining and development is a function of human resource management concerned with organizational activity aimed at bettering the performance of individuals and groups in organizational settings. Training and development can also be described as ‘an educational process which involves the sharpening of skills, concepts, changing of attitude and gaining more knowledge to enhance the performance of employees[1] It has been known by several names, including "Human Resource Development", "Human Capital Development" and "Learning and Development".PracticeMade out of the following areas:
Training: This activity is both focused upon, and evaluated against, the job that an individual currently holds.
Education: This activity focuses upon the jobs that an individual may potentially hold in the future, and is evaluated against those jobs.
Development: This activity focuses upon the activities that the organization employing the individual, or that the individual is part of, may partake in the future, and is almost impossible to evaluate.
Benefits of Training & DevelopmentTraining is crucial for organizational development and its success which is indeed fruitful to both employers and employees of an organization. Here are some important benefits of training and development
Increased productivity
Less supervision Job satisfaction] Skills Development
In all of the following areas very important to training and future Development.
A training simulation is a virtual medium through which various types of skills can be acquired.[1] Training simulations can be used in a wide variety of genres; however they are most commonly[2] used in corporate situations to improve business awareness and management skills. They are also common in academic environments as an integrated part of a business or management course.
Coaching is a form of development in which a person called a coach supports a learner or client in achieving a specific personal or professional goal. The learner is sometimes called a coachee. Occasionally, coaching may mean an informal relationship between two people, of whom one has more experience and expertise than the other and offers advice and guidance as the latter learns; but coaching differs from mentoring in focusing on specific tasks or objectives, as opposed to general goals or overall development.[1] [2] Address employee weaknesses: Most of the employees have certain weaknesses in their workplace, which hinder them from giving the best outputs. Training assists in eliminating these weaknesses, by strengthening workers skills and dissolving inner barriers. A well-organized development program helps employees gain analogous skills and knowledge, thus bringing them all to an advanced uniform level. This simply means that the whole workforce is reliable, so the company or organization doesn’t have to rely only on specific employees.
Increased consistency: A well-organized training and development program gives employees constant knowledge and experience. Access to regular training ensures that all employees have a consistent experience and consistent knowledge of tasks and procedures, something which is particularly important when it comes to basic company policies and procedures. Ensuring that all employees have consistent knowledge also helps to ensure that tasks are completed on time and without issues, and there are no questions to be asked about how things should be done. Safety, discrimination and administrative chores should be crucial tasks which require training. This mostly includes administrative procedures and ethics during execution of duty.
Reduction in learning time: Systematic training through trained instructors is essential to reduce the training period. If the employees learn through trial and error, they will take a longer time and even may not be able to learn right methods of doing work. Here training takes care of all these things in a compact manner and reduces the time frame of self-learning significantly.
Team spirit: Training and Development helps in instilling the sense of team work, team spirit, and inter-team collaborations. It helps in inculcating the zeal to learn within the employees.
Skills Development: Training and development helps in increasing the job knowledge and skills of employees at each level. It helps to expand the horizons of human intellect and an overall personality of the employees.
Optimum resource utilization: Training and Development significantly helps to provide an opportunity and broad structure for the development of human resources' technical and behavioral skills in an organization which ultimately results in optimum resource utilization, moreover it also helps the employees in attaining personal growth.
Development[The concept of training employees to have a wider perspective on their position within the workplace has been around for hundreds of years, [14] but it is only relatively recently that the idea of creating a simulated environment for trainees to test their abilities and skills has been developed. The first commercially available training simulation was in 1956, and was called The Top Management Decision Game, and was created by the American Management Association.[15] Since then, the market has expanded hugely, with thousands of simulations available based upon hundreds of different industries. Initially very simple with just a few choices to make, some simulations have become extremely complex with many different interlinking decisions. When training simulations were first used, they involved paper forms that were filled in by the participants and then compared by the organizer of the exercise. Nowadays, nearly all simulations are computer based,[16] and involve multi-stage algorithms that calculate performance based on the decisions entered. [17] Most simulations are based around a real industry, and hence they use real data to be as accurate as possible and to provide a realistic experience. However, some remain generic and do not model a particular industry, although these tend to be more useful for younger players or those with absolutely no business knowledge.
Integrated training simulationsMost corporations and academic courses that contain a training simulation integrate it into an existing or completely new training programme. [18] This allows the participants to get the maximum value from the experience, as well as review the sessions in order to improve them for future use. The structure of a training session would normally be as follows:
Introduction: the organizer of the program (plus sometimes a specialist in the training simulation) will meet the participants and give them a brief explanation of the purposes behind the training and what they should hope to achieve.
Lectures: sometimes the trainees will also receive one or more lectures around the topics that the simulation will be based on, in order to give them an idea of the type of skills they will need. This is especially important within academia, when the students will often be examined on this section after the event.
The simulation: the simulation will then be played, allowing newly acquired knowledge to be tested and skills practiced. A positive atmosphere is vital here to maintain enthusiasm.
Evaluation: once the simulation has been completed, it is very important to summarize what has been learnt and the effectiveness of the training. Presenting results to others may provide a means of internal assessment, as well as showcasing the players’ achievements.
This integrated training will allow everyone taking part in the simulation to get the maximum experience possible, as well as being entertaining, exciting and giving them a new perspective on
the business world. Many companies that specialize in training simulations also offer to create a special integrated plan unique to the client,[19] to make the process as streamlined and efficient as possible.
BenefitsSince training simulations are available based on such a wide range of different industries, and with thousands of different aims and objectives, it is difficult to outline a specific skill-set that will be improved by taking part in a training simulation. However, skills that every good training simulation should build on include:
Business awareness – before participating in the training programme, many players will have little idea of how to run a business or what it involves. Simulations allow them to temporarily have control over a virtual company, to see whether their decisions lead them to success or failure![20]
Time management and organization – most simulations contain timed sessions, which will test the candidates’ skill in submitting decisions within the allotted time slot. [21] This is an excellent skill for any employee or graduate.
Team coordination – the majority of training simulations involve working in groups or teams of people;[22] improving the abilities to communicate effectively, delegate tasks and diplomatically resolve any situations.
Problem solving – simulations will often present tricky circumstances that must be thought through logically to be solved.[23] Successful resolution of these shows good management skills.
If every participant improves in these four key skill areas, the training programme will be a success, and any business should notice an improvement in efficiency and motivation, and students will be inspired and animated.[24]
Web-based simulation Web-based simulation (WBS) is the invocation of computer simulation services over the World Wide Web, specifically through a web browser.[1][2][3][4] Increasingly, the web is being looked upon as an environment for providing modeling and simulation applications, and as such, is an emerging area of investigation within the simulation community. [4][5][6]
Web-based simulation is used in several contexts:
In e-learning, various principles can quickly be illustrated to students by means of interactive computer animations, for example during lecture demonstrations and computer exercises.
In distance learning, web-based simulation may provide an alternative to installing expensive simulation software on the student computer, or an alternative to expensive laborative equipment.
In software engineering, web-based emulation allows application development and testing on one platform for other target platforms, for example for various mobile operating systems [7] or mobile web browsers, without the need of target hardware or locally installed emulation software.
In online computer games, 3D environments can be simulated, and old home computers and video game consoles can be emulated, allowing the user to play old computer games in the web browser.
In medical education, nurse education and allied health education (like sonographer training), web-based simulations can be used for learning and practicing clinical healthcare procedures. Web-based procedural simulations emphasize the cognitive elements such as the steps of the procedure, the decisions, the tools/devices to be used, and the correct anatomical location.
Existing tools
AgentSheets – graphically programmed tool for creating web-based The Sims-like simulation games, and for teaching beginner students programming.
AnyLogic – a graphically programmed tool that generates Java code for discrete event simulation, system dynamics and agent-based models
Easy Java Simulations – a tool for modelling and visualization of physical phenomenons, that automatically generates Java code from mathematical expressions.
ExploreLearning Gizmos – a large library of interactive online simulations for math and science education in grades 3–12.
GNU Octave web interfaces – MATLAB compatible open-source software
Google Chart API – for the generation of embedded charts in web pages
Lanner Group Ltd L-SIM Server – Java-based discrete event simulation engine which supports model standards such as BPMN 2.0
Nanohub – web 2.0 in-browser interactive simulation of nanotechnology
NetLogo – a multi-agent programming language and integrated modeling environment that runs on the Java Virtual Machine
OpenPlaG – PHP-based function graph plotter for the use on websites
OpenEpi – web-based packet of tools for biostatistics
Recursive Porous Agent Simulation Toolkit (Repast) – agent-based modeling and simulation toolkit implemented in Java and many other languages
SAGE – open source numerical analysis software with web-interface, based on the Python programming language
Simulation123 – a tool supporting web-based simulation documentation, a category of web-based simulation[1]
SimScale – web-based simulation platform supporting computational fluid dynamics, solid mechanics, and thermodynamics
Social simulation – review of computational sociology and agent based systems.
StarLogo – agent-based simulation language written in Java.
VisSim viewer – graphically programmed data flow diagrams for simulation of dynamical systems
webMathematica and Mathematica Player – a computer algebra system and programming language.
VisualSim Explorer – enables system level models to be embedded in documents for viewing, simulation and analysis from within a Web Browser without any local software installation.
Performance management (PM) Performance management (PM) includes activities which ensure that goals are consistently being met in an effective and efficient manner. Performance management can focus on the performance of an organization, a department, employee, or even the processes to build a product or service, as well as many[quantify] other areas.
PM is also known[by whom?] as a process by which organizations align their resources, systems and employees to strategic objectives and priorities.
ApplicationThis is used most often in the workplace, can apply wherever people interact — schools, churches, community meetings, sports teams, health setting, governmental agencies, social events, and even political settings - anywhere in the world people interact with their environments to produce desired effects. Armstrong and Baron (1998) defined it as a “strategic and integrated approach to increase the effectiveness of companies by improving the performance of the people who work in them and by developing the capabilities of teams and individual contributors.”
First, a commitment analysis must be done where a job mission statement is drawn up for each job. The job mission statement is a job definition in terms of purpose, customers, product and scope. The aim with this analysis is to determine the continuous key objectives and performance standards for each job positionBenefitsManaging employee or system performance and aligning their objectives facilitates the effective delivery of strategic and operational goals. Some proponents argue that there is a clear and immediate correlation between using performance management programs or software and improved business and organizational results. [citation needed] In the public sector, the effects of performance management systems have differed from positive to negative, suggesting that differences in the characteristics of performance management systems and the contexts into which they are implemented play an important role to the success or failure of performance management. [3][4]
For employee performance management, using integrated software, rather than a spreadsheet based recording system, may deliver a significant return on investment through a range of direct and indirect sales benefits, operational efficiency benefits and by unlocking the latent potential in every employees work day (i.e. the time they spend not actually doing their job). Benefits may include:
Direct financial gain
Grow sales
Reduce costs in the organization
Stop project overruns
Aligns the organization directly behind the CEO's goals
Decreases the time it takes to create strategic or operational changes by communicating the changes through a new set of goals
Motivated workforce
Optimizes incentive plans to specific goals for over achievement, not just business as usual
Improves employee engagement because everyone understands how they are directly contributing to the organizations high level goals
Create transparency in achievement of goals
High confidence in bonus payment process
Professional development programs are better aligned directly to achieving business level goalsImproved management control
Flexible, responsive to management needs
Displays data relationships
Helps audit / comply with legislative requirement
Simplifies communication of strategic goals scenario planning
Provides well documented and communicated process documentationOrganizational developmentIn organizational development (OD), performance can be thought of as Actual Results vs Desired Results. Any discrepancy, where Actual is less than Desired, could constitute the performance improvement zone. Performance management and improvement can be thought of as a cycle:
1. Performance planning where goals and objectives are established
2. Performance coaching where a manager intervenes to give feedback and adjust performance
3. Performance appraisal where individual performance is formally documented and feedback delivered
A performance problem is any gap between Desired Results and Actual Results. Performance improvement is any effort targeted at closing the gap between Actual Results and Desired Results.
Other organizational development definitions are slightly different. The U.S. Office of Personnel Management (OPM) indicates that Performance Management consists of a system or process whereby:
1. Work is planned and expectations are set
2. Performance of work is monitored
3. Staff ability to perform is developed and enhanced
4. Performance is rated or measured and the ratings summarized
5. Top performance is rewarded[5]
Performance management in the companyMany people equate performance management with performance appraisal. This is a common misconception. Performance management is the term used to refer to activities, tools, processes, and programs that companies create or apply to manage the performance of individual employees, teams, departments, and other organizational units within their organizational influence. In contrast, performance appraisal refers to the act of appraising or evaluating performance during a given performance period to determine how well an employee, a vendor or an organizational unit has performed relative to agreed objectives or goals, and this is only one of many important activities within the overall concept of performance management.
At the workplace, performance management is implemented by employees with supervisory roles. Normally, the goal of managing performance is to allow individual employees to find out how well they had performed relative to performance targets or key performance indicators during a specific performance period from their supervisors and managers.
Organizations and companies typically manage employee performance over a formal 12-month period (otherwise known as the formal company performance period).
The results of performance management exercises are used:
in employee development planning to select the most appropriate and suitable development intervention to improve employees' knowledge, skills and behavior
as factual basis for compensation and rewards (pay raise & bonuses being the most common)
as factual basis in consideration with other factors for mobility (Example: transfers and promotions)
The Balanced ScorecardThe Balanced Scorecard "translates an organization's mission and strategy into a comprehensive set of performance measures that provide the framework for a strategic measurement and management system". It was originally made for the private sector to "overcome deficiencies in the financial accounting model".
Social Return on Investment (SROI)While it is difficult to assign a financial value to social benefits many nonprofit work to produce, nonprofits feel the need to measure their performance. Social Return on Investment (SROI) is a form of measurement that can be used by nonprofits. SROI assigns a financial value to charitable activities so that nonprofits can measure their social benefits. For example, the nonprofit Crises employs the SROI method to measure the value of their activities by trying to show how helping the homeless population access education and training has benefits such as creating tax revenue and reducing the cost of welfare.
Evaluation vs. Performance MeasurementEvaluating programs can help figure out what works for the organization and what does not. However, evaluation takes time and is costly. Performance Measurement on the other hand is less time-consuming and can provide information in time for day to day decisions. While both evaluation and performance measurements are necessary they each have their own advantages and disadvantages. A con of performance measurement is that the validity of the results can be questioned and it is not clear as to whether or not positive outcomes were due to a specific program. [14]
A performance metric is that which determines an organization's behavior and performance. Performance metrics measure an organization's activities and performance. It should support a range of stakeholder needs from customers, shareholders to employees.[1] While traditionally many metrics are finance based, inwardly focusing on the performance of the organization, metrics may also focus on the performance against customer requirements and value.[2] In project management, performance metrics are used to assess the health of the project and consist of the measuring of seven criteria: safety, time, cost, resources, scope, quality, and actions. [3] In call centres, performance metrics help capture internal performance and can include productivity measurements and the quality of service provided by the customer service advisor. These metrics can include: Calls Answered, Calls Abandoned, Average Handle Time and Average Wait Time. [4]
Developing performance metrics usually follows a process of:
1. Establishing critical processes/customer requirements
2. Identifying specific, quantifiable outputs of work
3. Establishing targets against which results can be scored
RemunerationRemuneration 1. is the compensation that one receives in exchange for the work or services performed.; 2. Not to be confused with giving (away), or donating, or the act of providing to. 3. Example: Remuneration is to Paycheck; as Retirement is to Compensate [1] A number of complementary benefits, however, are increasingly popular remuneration mechanisms. Remuneration is one component of reward management.
One of the most common means of attempting to align principal and agent interests is to design a contract with incentives that track agent performance. The principal–agent theory provides an explanation for the dissimilarities across the marketing firms in the types of compensation plans used by them, such as fixed salary, straight commission or a combination of both fixed salary and straight commissions.[2]
Although many types of commission systems exist, a common form is known as on-target earnings in which commission rates are based on the achievement of specific targets that have been agreed upon between management and the salesperson. Commissions are intended to create a strong incentive for employees to invest maximum effort into their work.
Often, a firm embracing a commission structure may not involve employees, but may solely establish themselves using independent contractors. An example in the US could be a real estate agent.
Compensation methods (Remuneration), Pricing models and business models used for the different types of internet marketing, including affiliate marketing,contextual advertising, search engine marketing (including vertical comparison shopping search engines and local search engines) and display advertising.
Predominant compensation methods in affiliate marketingThe following models are also referred to as performance based pricing/compensation model, because they only pay if a visitor performs an action that is desired by the advertisers or completes a purchase. Advertisers and publishers share the risk of a visitor that does not convert.
Pay-per-sale (PPS) - (revenue share)Cost-per-sale (CPS). Advertiser pays the publisher a percentage of the order amount (sale) that was created by a customer who was referred by the publisher. revenue sharing.
Pay-per-lead (PPL)/pay-per-action (PPA)Cost-per-action or cost-per-acquisition (CPA), cost per lead (CPL). Advertiser pays publisher a commission for every visitor referred by the publisher to the advertiser (web site) and performs a desired action, such as filling out a form, creating an account or signing up for a newsletter. This compensation model is very popular with online services from internet service providers, cell phone providers, banks (loans, mortgages, credit cards) and subscription services.
Special CPA compensation modelsPay-per-call[Similar to pay per click, pay per call is a business model for ad listings in search engines and directories that allows publishers to charge local advertisers on a per-call basis for each lead (call) they generate (CPA). Advertiser pays publisher a commission for phone calls received from potential prospects as response to a specific publisher ad.
The term "pay per call" is sometimes confused with click-to-call, the technology that enables the "pay-per-call" business model. Call-tracking technology allows to create a bridge between online and offline advertising. Click-to-call is a service which lets users click a button or link and immediately speak with a customer service representative. The call can either be carried over VoIP, or the customer may request an immediate call back by entering their phone number. One significant benefit to click-to-call providers is that it allows companies to monitor when online visitors change from the website to a phone sales channel.
Pay-per-call is not just restricted to local advertisers. Many of the pay-per-call search engines allows advertisers with a national presence to create ads with local telephone numbers. Pay-per-call advertising is still new and in its infancy, but according to the Kelsey Group, the pay-per-phone-call market is expected to reach US$3.7 billion by 2010. [citation needed]
Pay-per-install (PPI)
Advertiser pays publisher a commission for every install by a user of usually free applications bundled with adware applications. Users are prompted first if they really want to download and install this software. Pay per install is included in the definition for pay per action (like cost-per-acquisition), but its relationship to how adware is distributed made the use of this term versus pay per action more popular to distinguish it from other CPA offers that pay for software downloads. The term pay per install is being used beyond the download of adware. [1]
Some botnets are known to operate PPI scams to generate money for their operators. Essentially, the compromised computer with the bot agent is instructed to install the software package from a registered PPI source via the bot's command and control system. The bot operator then receives payment from the PPI agency and, after a short period of time, uninstalls the software package and installs a new one.[2]
Pricing models in search engine marketingPay-per-click (PPC)Cost-per-click (CPC). Advertiser pays publisher a commission every time a visitor clicks on the advertiser's ad. It is irrelevant (for the compensation) how often an ad is displayed. commission is only due when the ad is clicked. See also click fraud.
Pay per action (PPA)Cost-per-action (CPA). Search engines started to experiment with this compensation method in spring 2007.
Pricing models in display advertisingPay-per-impression (PPI)Cost-per-mil (mil/mille/M = Latin/Roman numeral for thousand) impressions. Publisher earns a commission for every 1,000 impressions (page views/displays) of text, banner image or rich media ads.
Pay per action (PPA) or cost per action (CPA)Cost-per-action (CPA). Used by display advertising as pricing mode as early as 1998. [3] By mid-2007 the CPA/Performance pricing mode (50%) superseded the CPM pricing mode (45%) and became the dominant pricing mode for display advertising. [4]
Shared CPMShared Cost-per-mil (CPM) is a pricing model in which two or more advertisers share the same ad space for the duration of a single impression (or page view) in order to save CPM costs. Publishers offering a shared CPM pricing model generally offer a discount to compensate for the reduced exposure received by the advertisers that opt to share online ad space in this way. Inspired by the rotating billboards of outdoor advertising, the shared CPM pricing model can be implemented with either refresh scripts (client-side JavaScript) or specialized rich media ad units. Publishers that opt to offer a shared CPM pricing model with their existing ad management platforms must employ additional tracking methods to ensure accurate impression counting and separate click-through tracking for each advertiser that opts to share a particular ad space with one or more other advertisers.
Compensation methods in contextual advertisingPay-per-click (PPC)See PPC/CPC in Search engine marketing.
Pay-per-impression (PPI)see PPI/CPM in Display Advertising
Google AdSense offers this compensation method for its "Advertise on this site" feature that allows advertisers to target specific publisher sites within the Google content network.
Compensation methods gridThere are different names used for the same type of compensation method and some compensation methods are actually special cases for another method. This grid shows alternative names for the individual compensation methods. The "cost per ..." name was used as default.
Cost per xxx
Alternative Termsand sub-types
Notes
Cost per click (CPC)
Pay per click (PPC) Pay per click is as much used as CPCWhile CPC is being used more when it comes to statistics and analytics, is PPCpredominant for the use in Pay per click advertising or PPC
search engine
Cost per action (CPA)
Pay per action (PPA)
Special Types of CPA (Sub-Types)
Pay per lead (PPL)
Cost per lead (CPL)
e.g. Application Form filled out, Email List sign up
Pay per conversion (n/a)
Cost per conversion (n/a)
Pay per acquisition (PPA)
Cost per acquisition (CPA)
Create own paragraph. New Customer, Email List sign up
Pay per call (n/a) Special type of CPA that requires different tracking than traditional CPA tracking (such as unique phone numbers)
Cost per call (n/a)
Pay per download (n/a)
create own paragraph.
Cost per download (n/a)
Pay per install (PPI) Only used if referred to AdWare Downloads
Cost per install
Cost per sale (CPS)
Pay per sale (PPS)
Commission per sale (n/a)
Revenue share General term for paying a percentage of the earned revenue as commission to the parter
Cost per mile (CPM)
Pay per mille (PPM)
Cost per impression (CPI)
Pay per impression (PPI)
Cost per thousand (CPM)
M in CPM stands for Mille, which is the Roman numeral for Thousand
Pay per thousand (PPT)
An employee stock option (ESO) is commonly viewed as a complex call option on the common stock of a company, granted by the company to an employee as part of the employee's remuneration package.[1] Regulators and economists have since specified that "employee stock options" is a label that refers to compensation contracts between an employer and an employee that carries some characteristics of financial options but are not in and of themselves options (that is they are "compensation contracts"). Web-based simulation is used in several contexts:
In e-learning, various principles can quickly be illustrated to students by means of interactive computer animations, for example during lecture demonstrations and computer exercises.
In distance learning, web-based simulation may provide an alternative to installing expensive simulation software on the student computer, or an alternative to expensive laborative equipment.
In software engineering, web-based emulation allows application development and testing on one platform for other target platforms, for example for various mobile operating systems [7] or mobile web browsers, without the need of target hardware or locally installed emulation software.
In online computer games, 3D environments can be simulated, and old home computers and video game consoles can be emulated, allowing the user to play old computer games in the web browser.
In medical education, nurse education and allied health education (like sonographer training), web-based simulations can be used for learning and practicing clinical healthcare procedures. Web-based procedural simulations emphasize the cognitive elements such as the steps of the procedure, the decisions, the tools/devices to be used, and the correct anatomical location.
Existing tools
AnyLogic – a graphically programmed tool that generates Java code for discrete event simulation, system dynamics and agent-based models
AgentSheets – graphically programmed tool for creating web-based The Sims-like simulation games, and for teaching beginner students programming.
Easy Java Simulations – a tool for modelling and visualization of physical phenomenons, that automatically generates Java code from mathematical expressions.
ExploreLearning Gizmos – a large library of interactive online simulations for math and science education in grades 3–12.
GNU Octave web interfaces – MATLAB compatible open-source software
Google Chart API – for the generation of embedded charts in web pages
Lanner Group Ltd L-SIM Server – Java-based discrete event simulation engine which supports model standards such as BPMN 2.0
Nanohub – web 2.0 in-browser interactive simulation of nanotechnology
NetLogo – a multi-agent programming language and integrated modeling environment that runs on the Java Virtual Machine
OpenPlaG – PHP-based function graph plotter for the use on websites
OpenEpi – web-based packet of tools for biostatistics
Recursive Porous Agent Simulation Toolkit (Repast) – agent-based modeling and simulation toolkit implemented in Java and many other languages
SAGE – open source numerical analysis software with web-interface, based on the Python programming language
Simulation123 – a tool supporting web-based simulation documentation, a category of web-based simulation[1]
SimScale – web-based simulation platform supporting computational fluid dynamics, solid mechanics, and thermodynamics
Social simulation – review of computational sociology and agent based systems.
StarLogo – agent-based simulation language written in Java.
VisSim viewer – graphically programmed data flow diagrams for simulation of dynamical systems
webMathematica and Mathematica Player – a computer algebra system and programming language.
VisualSim Explorer – enables system level models to be embedded in documents for viewing, simulation and analysis from within a Web Browser without any local software installation. Performance management (PM) includes activities which ensure that goals are consistently
being met in an effective and efficient manner. Performance management can focus on the performance of an organization, a department, employee, or even the processes to build a product or service, as well as many[quantify] other areas.
PM is also known[by whom?] as a process by which organizations align their resources, systems and employees to strategic objectives and priorities.
ApplicationThis is used most often in the workplace, can apply wherever people interact — schools, churches, community meetings, sports teams, health setting, governmental agencies, social events, and even political settings - anywhere in the world people interact with their environments to produce desired effects. Armstrong and Baron (1998) defined it as a “strategic and integrated approach to increase the effectiveness of companies by improving the performance of the people who work in them and by developing the capabilities of teams and individual contributors.”
First, a commitment analysis must be done where a job mission statement is drawn up for each job. The job mission statement is a job definition in terms of purpose, customers, product and scope. The aim with this analysis is to determine the continuous key objectives and performance standards for each job position.
BenefitsManaging employee or system performance and aligning their objectives facilitates the effective delivery of strategic and operational goals. Some proponents argue that there is a clear and immediate correlation between using performance management programs or software and improved business and organizational results. In the public sector, the effects of performance management systems have differed from positive to negative, suggesting that differences in the characteristics of performance management systems and the contexts into which they are implemented play an important role to the success or failure of performance management.
For employee performance management, using integrated software, rather than a spreadsheet based recording system, may deliver a significant return on investment through a range of direct and indirect sales benefits, operational efficiency benefits and by unlocking the latent potential in every employees work day (i.e. the time they spend not actually doing their job). Benefits may include:
Direct financial gain Grow sales
Reduce costs in the organization
Stop project overruns
Aligns the organization directly behind the CEO's goals
Decreases the time it takes to create strategic or operational changes by communicating the changes through a new set of goals
Motivated workforce Optimizes incentive plans to specific goals for over achievement, not just business as usual
Improves employee engagement because everyone understands how they are directly contributing to the organizations high level goals
Create transparency in achievement of goals
High confidence in bonus payment process
Professional development programs are better aligned directly to achieving business level goalsImproved management control Flexible, responsive to management needs
Displays data relationships
Helps audit / comply with legislative requirement
Simplifies communication of strategic goals scenario planning
Provides well documented and communicated process documentation
Organizational development[edit]In organizational development (OD), performance can be thought of as Actual Results vs Desired Results. Any discrepancy, where Actual is less than Desired, could constitute the performance improvement zone. Performance management and improvement can be thought of as a cycle:
1. Performance planning where goals and objectives are established
2. Performance coaching where a manager intervenes to give feedback and adjust performance
3. Performance appraisal where individual performance is formally documented and feedback delivered
A performance problem is any gap between Desired Results and Actual Results. Performance improvement is any effort targeted at closing the gap between Actual Results and Desired Results.
Other organizational development definitions are slightly different. The U.S. Office of Personnel Management (OPM) indicates that Performance Management consists of a system or process whereby:
1. Work is planned and expectations are set
2. Performance of work is monitored
3. Staff ability to perform is developed and enhanced
4. Performance is rated or measured and the ratings summarized
5. Top performance is rewarded[5]
Performance management in companies[edit]Many people equate performance management with performance appraisal. This is a common misconception. Performance management is the term used to refer to activities, tools, processes, and programs that companies create or apply to manage the performance of individual employees, teams, departments, and other organizational units within their organizational influence. In contrast, performance appraisal refers to the act of appraising or evaluating performance during a given performance period to determine how well an employee, a vendor or an organizational unit has performed relative to agreed objectives or goals, and this is only one of many important activities within the overall concept of performance management.
At the workplace, performance management is implemented by employees with supervisory roles. Normally, the goal of managing performance is to allow individual employees to find out how well they had performed relative to performance targets or key performance indicators during a specific performance period from their supervisors and managers.
Organizations and companies typically manage employee performance over a formal 12-month period (otherwise known as the formal company performance period).
The results of performance management exercises are used:
in employee development planning to select the most appropriate and suitable development intervention to improve employees' knowledge, skills and behavior
as factual basis for compensation and rewards (pay raise & bonuses being the most common)
as factual basis in consideration with other factors for mobility (Example: transfers and promotions)
Performance management (PM) Performance measurement[1] is the process of collecting, analyzing and/or reporting information regarding the performance of an individual, group, organization, system or component. It can involve studying processes/strategies within organizations, or studying engineering processes/parameters/phenomena, to see whether output are in line with what was intended or should have been achieved. he Balanced Scorecard[edit]The Balanced Scorecard "translates an organization's mission and strategy into a comprehensive set of performance measures that provide the framework for a strategic measurement and management system".[11] It was originally made for the private sector to "overcome deficiencies in the financial accounting model". [12]
Social Return on Investment (SROI)[edit]While it is difficult to assign a financial value to social benefits many nonprofit work to produce, nonprofits feel the need to measure their performance. Social Return on Investment (SROI) is a form of measurement that can be used by nonprofits. SROI assigns a financial value to charitable activities so that nonprofits can measure their social benefits. For example, the nonprofit Crises employs the SROI method to measure the value of their activities by trying to show how helping the homeless population access education and training has benefits such as creating tax revenue and reducing the cost of welfare. [13]
Evaluation vs. Performance Measurement[edit]Evaluating programs can help figure out what works for the organization and what does not. However, evaluation takes time and is costly. Performance Measurement on the other hand is less time-consuming and can provide information in time for day to day decisions. While both evaluation and performance measurement are necessary they each have their own advantages and disadvantages. A con of performance measurement is that the validity of the results can be questioned and it is not clear as to whether or not positive outcomes were due to a specific program. [14]
A performance metric is that which determines an organization's behavior and performance. Performance metrics measure an organization's activities and performance. It should support a range of stakeholder needs from customers, shareholders to employees.[1] While traditionally many metrics are finance based, inwardly focusing on the performance of the organization, metrics may also focus on the performance against customer requirements and value.[2] In project management, performance metrics are used to assess the health of the project and consist of the measuring of seven criteria: safety, time, cost, resources, scope, quality, and actions. [3] In call centres, performance metrics help capture internal performance and can include productivity measurements and the quality of service provided by thecustomer service advisor. These metrics can include: Calls Answered, Calls Abandoned, Average Handle Time and Average Wait Time. [4]
Developing performance metrics usually follows a process of:
1. Establishing critical processes/customer requirements
2. Identifying specific, quantifiable outputs of work
3. Establishing targets against which results can be scored
Remuneration 1. is the compensation that one receives in exchange for the work or services performed.; 2. Not to be confused with giving (away), or donating, or the act of providing to. 3. Example: Remuneration is to Paycheck; as Retirement is to Compensate [1] A number of complementary benefits, however, are increasingly popular remuneration mechanisms.
Remuneration is one component of reward management. he payment of commission as remuneration for services rendered or products sold is a common way to reward sales people. Payments often are calculated on the basis of a percentage of the goods sold, a way for firms to solve the principal–agent problem by attempting to realign employees' interests with those of the firm. One of the most common means of attempting to align principal and agent interests is to design a contract with incentives that track agent performance. The principal–agent theory provides an explanation for the dissimilarities across the marketing firms in the types of compensation plans used by them, such as fixed salary, straight commission or a combination of both fixed salary and straight commissions.[2]
Although many types of commission systems exist, a common form is known as on-target earnings in which commission rates are based on the achievement of specific targets that have been agreed upon between management and the salesperson. Commissions are intended to create a strong incentive for employees to invest maximum effort into their work.
Often, a firm embracing a commission structure may not involve employees, but may solely establish themselves using independent contractors. An example in the US could be a real estate agent.
Compensation methods (Remuneration), Pricing models and business models used for the different types of internet marketing, including affiliate marketing,contextual advertising, search engine marketing (including vertical comparison shopping search engines and local search engines) and display advertising. Predominant compensation methods in affiliate marketing[edit]The following models are also referred to as performance based pricing/compensation model, because they only pay if a visitor performs an action that is desired by the advertisers or completes a purchase. Advertisers and publishers share the risk of a visitor that does not convert.
Pay-per-sale (PPS) - (revenue share)[edit]Cost-per-sale (CPS). Advertiser pays the publisher a percentage of the order amount (sale) that was created by a customer who was referred by the publisher. revenue sharing.
Pay-per-lead (PPL)/pay-per-action (PPA)[edit]Cost-per-action or cost-per-acquisition (CPA), cost per lead (CPL). Advertiser pays publisher a commission for every visitor referred by the publisher to the advertiser (web site) and performs a desired action, such as filling out a form, creating an account or signing up for a newsletter. This compensation model is very popular with online services from internet service providers, cell phone providers, banks (loans, mortgages, credit cards) and subscription services.
Special CPA compensation models[edit]Pay-per-call[edit]Similar to pay per click, pay per call is a business model for ad listings in search engines and directories that allows publishers to charge local advertisers on a per-call basis for each lead (call) they generate (CPA). Advertiser pays publisher a commission for phone calls received from potential prospects as response to a specific publisher ad.
The term "pay per call" is sometimes confused with click-to-call, the technology that enables the "pay-per-call" business model. Call-tracking technology allows to create a bridge between online and offline advertising. Click-to-call is a service which lets users click a button or link and immediately speak with a customer service representative. The call can either be carried over VoIP, or the customer may request an immediate call back by entering their phone number. One significant benefit to click-to-call providers is that it allows companies to monitor when online visitors change from the website to a phone sales channel.
Pay-per-call is not just restricted to local advertisers. Many of the pay-per-call search engines allows advertisers with a national presence to create ads with local telephone numbers. Pay-per-call advertising is still new and in its infancy, but according to the Kelsey Group, the pay-per-phone-call market is expected to reach US$3.7 billion by 2010. [citation needed]
Pay-per-install (PPI)[edit]Advertiser pays publisher a commission for every install by a user of usually free applications bundled with adware applications. Users are prompted first if they really want to download and install this software. Pay per install is included in the definition for pay per action (like cost-per-acquisition), but its relationship to how adware is distributed made the use of this term versus pay per action more popular to distinguish it from other CPA offers that pay for software downloads. The term pay per install is being used beyond the download of adware. [1]
Some botnets are known to operate PPI scams to generate money for their operators. Essentially, the compromised computer with the bot agent is instructed to install the software package from a registered PPI source via the bot's command and control system. The bot operator then receives payment from the PPI agency and, after a short period of time, uninstalls the software package and installs a new one.[2]
Pricing models in search engine marketing[edit]Pay-per-click (PPC)[edit]Cost-per-click (CPC). Advertiser pays publisher a commission every time a visitor clicks on the advertiser's ad. It is irrelevant (for the compensation) how often an ad is displayed. commission is only due when the ad is clicked. See also click fraud.
Pay per action (PPA)[edit]Cost-per-action (CPA). Search engines started to experiment with this compensation method in spring 2007.
Pricing models in display advertising[edit]Pay-per-impression (PPI)[edit]Cost-per-mil (mil/mille/M = Latin/Roman numeral for thousand) impressions. Publisher earns a commission for every 1,000 impressions (page views/displays) of text, banner image or rich media ads.
Pay per action (PPA) or cost per action (CPA)[edit]Cost-per-action (CPA). Used by display advertising as pricing mode as early as 1998. [3] By mid-2007 the CPA/Performance pricing mode (50%) superseded the CPM pricing mode (45%) and became the dominant pricing mode for display advertising. [4]
Shared CPM[edit]Shared Cost-per-mil (CPM) is a pricing model in which two or more advertisers share the same ad space for the duration of a single impression (or page view) in order to save CPM costs. Publishers offering a shared CPM pricing model generally offer a discount to compensate for the reduced exposure received by the advertisers that opt to share online ad space in this way. Inspired by the rotating billboards of outdoor advertising, the shared CPM pricing model can be implemented with either refresh scripts (client-side JavaScript) or specialized rich media ad units. Publishers that opt to offer a shared CPM pricing model with their existing ad management platforms must employ additional tracking methods to ensure accurate impression counting and separate click-through
tracking for each advertiser that opts to share a particular ad space with one or more other advertisers.
Compensation methods in contextual advertising[edit]Pay-per-click (PPC)[edit]See PPC/CPC in Search engine marketing.
Pay-per-impression (PPI)[edit]see PPI/CPM in Display Advertising
Google AdSense offers this compensation method for its "Advertise on this site" feature that allows advertisers to target specific publisher sites within the Google content network.
Compensation methods grid[edit]There are different names used for the same type of compensation method and some compensation methods are actually special cases for another method. This grid shows alternative names for the individual compensation methods. The "cost per ..." name was used as default.
Cost per xxx
Alternative Termsand sub-types
Notes
Cost per click (CPC)
Pay per click (PPC) Pay per click is as much used as CPCWhile CPC is being used more when it comes to statistics and analytics, is PPCpredominant for the use in Pay per click advertising or PPC search engine
Cost per action (CPA)
Pay per action (PPA)
Special Types of CPA (Sub-Types)
Pay per lead (PPL)
Cost per lead (CPL)
e.g. Application Form filled out, Email List sign up
Pay per conversion (n/a)
Cost per
conversion (n/a)
Pay per acquisition (PPA)
Cost per acquisition (CPA)
Create own paragraph. New Customer, Email List sign up
Pay per call (n/a) Special type of CPA that requires different tracking than traditional CPA tracking (such as unique phone numbers)
Cost per call (n/a)
Pay per download (n/a)
create own paragraph.
Cost per download (n/a)
Pay per install (PPI) Only used if referred to AdWare Downloads
Cost per install
Cost per sale (CPS)
Pay per sale (PPS)
Commission per sale (n/a)
Revenue share General term for paying a percentage of the earned revenue as commission to the parter
Cost per mille (CPM)
Pay per mille (PPM)
Cost per impression (CPI)
Pay per impression (PPI)
Cost per thousand (CPM)
M in CPM stands for Mille, which is the Roman numeral for Thousand
Pay per thousand (PPT)
An employee stock option (ESO) is commonly viewed as a complex call option on the common stock of a company, granted by the company to an employee as part of the employee's remuneration package.[1] Regulators and economists have since specified that "employee stock options" is a label that refers to compensation contracts between an employer and an employee that carries some characteristics of financial options but are not in and of themselves options (that is they are "compensation contracts"). Stock option expensing was a controversy well before the most recent set of controversies in the early 2000s. The earliest attempts by accounting regulators to expense stock options in the early 1990s were unsuccessful and resulted in the promulgation of FAS123 by the Financial Accounting Standards Board which required disclosure of stock option positions but no income statement expensing, per se. The controversy continued and in 2005, at the insistence of the SEC, the FASB modified the FAS123 rule to provide a rule that the options should be expensed as of the grant date. One misunderstanding is that the expense is at the fair value of the options. This is not true. The expense is indeed based on the fair value of the options but that fair value measure does not follow the fair value rules for other items which are governed by a separate set of rules under ASC Topic 820. In addition the fair value measure must be modified for forfeiture estimates and may be modified for other factors such as liquidity before expensing can occur. Finally the expense of the resulting number is rarely made on the grant date but in some cases must be deferred and in other cases may be deferred over time as set forth in the revised accounting rules for these contracts known as FAS123(revised). [2] Employee Stock Options are non standard contracts with the employer whereby the employer has the liability of delivering a certain number of shares of the employer stock, when and if the employee stock options are exercised by the employee. Traditional employee stock options have structural problems, in that when exercised followed by an immediate sale of stock, the alignment between employee/shareholders is eliminated. Early exercises also have substantial penalties to the exercising employee. Those penalties are a) part of the "fair value" of the options, called "time value" is forfeited back to the company and b) an early tax liability occurs. These two penalties overcome the merits of "diversifying" in most cases. Contract differences[edit]Employee stock options have the following differences from standardized, exchange-traded options:
Exercise price: The exercise price is non-standardized and is usually the current price of the company stock at the time of issue. Alternatively, a formula may be used, such as sampling the lowest closing price over a 30-day window on either side of the grant date. On the other hand, choosing an exercise at grant date equal to the average price for the next sixty days after the grant would eliminate the chance of back dating and spring loading. Often, an employee may have ESOs exercisable at different times and different exercise prices.
Quantity: Standardized stock options typically have 100 shares per contract. ESOs usually have some non-standardized amount.
Vesting : Initially if X number of shares are granted to employee, then all X may not be in his account.
some or all of the options may require that the employee continue to be employed by the company for a specified term of years before "vesting", i.e. selling or transferring the stock or options. Vesting may be granted all at once ("cliff vesting") or over a period time ("graded vesting"), in which case it may be "uniform" (e.g. 20% of the options vest each year for 5
years) or "non-uniform" (e.g. 20%, 30% and 50% of the options vest each year for the next three years).
some or all of the options may require a certain event to occur, such as an initial public offering of the stock, or a change of control of the company.
Or the options may require the employee or the company meet certain performance goals or profits (e.g., a 10% increase in sales)[4]
Duration (Expiration): ESOs often have a maximum maturity that far exceeds the maturity of standardized options. It is not unusual for ESOs to have a maximum maturity of 10 years from date of issue, while standardized options usually have a maximum maturity of about 30 months.
Non-transferable: With few exceptions, ESOs are generally not transferable and must either be exercised or allowed to expire worthless on expiration day. There is a substantial risk that when the ESOs are granted (perhaps 50%[5]) that the options will be worthless at expiration.[6] This should encourage the holders to reduce risk by selling exchange traded call options. In fact it is the only efficient way to manage those speculative ESOs and SARs. Wealth Managers generally advise early exercise of ESOs and SARs, then sell and diversify.
Over the counter : Unlike exchange traded options, ESOs are considered a private contract between the employer and employee. As such, those two parties are responsible for arranging the clearing and settlement of any transactions that result from the contract. In addition, the employee is subjected to the credit risk of the company. If for any reason the company is unable to deliver the stock against the option contract upon exercise, the employee may have limited recourse. For exchange-trade options, the fulfillment of the option contract is guaranteed by the Options Clearing Corp.
Tax issues: There are a variety of differences in the tax treatment of ESOs having to do with their use as compensation. These vary by country of issue but in general, ESOs are tax-advantaged with respect to standardized options. See below.
In the U.S., stock options granted to employees are of two forms that differ primarily in their tax treatment. They may be either:
Incentive stock options (ISOs)
Non-qualified stock options (NQSOs or NSOs)
In the UK, there are various approved tax and employee share schemes, [7] including Enterprise Management Incentives (EMIs).[8] (Employee share schemes that aren’t approved by the UK government don’t have the same tax advantages.)
Valuation[edit]As of 2006, the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) agree that the fair value at the grant date should be estimated using an option pricing model. Via requisite modifications, the valuation should incorporate the features described above. Note that, having incorporated these, the value of the ESO will typically "be much less than Black–Scholes prices for corresponding market-traded options...." [9] Here, in discussing the valuation, FAS 123 Revised (A15) - which does not prescribe a specific valuation model - states that:
a lattice model can be designed to accommodate dynamic assumptions of expected volatility and dividends over the option’s contractual term, and estimates of expected option exercise patterns during the option’s contractual term, including the effect of blackout periods. Therefore, the design of a lattice model more fully reflects the substantive characteristics of a particular employee share option or similar instrument. Nevertheless, both a lattice model and theBlack–Scholes–Merton formula, as well as other valuation techniques that meet the requirements … can provide a fair value estimate that is consistent with the measurement objective and fair-value-based method….
The reference to “contractual term” requires that the model incorporates the effect of vesting on the valuation. As above, option holders may not exercise their option prior to their vesting date, and during this time the option is effectively European in style. “Blackout periods”, similarly, requires that the model recognizes that the option may not be exercised during the quarter (or other period) preceding the release of financial results (or other corporate event), when employees would be precluded from trade in company securities; see Insider trading. During other times, exercise would be allowed, and the option is effectively American there. Given this pattern, the ESO, in total, is therefore a Bermudan option. Note that employees leaving the company prior to vesting will forfeit unvested options, which results in a decrease in the company's liability here, and this too must be incorporated into the valuation.
The reference to “expected exercise patterns” is to what is called “suboptimal early exercise behavior”.[10] Here, regardless of other considerations − see Rational pricing#Options — employees are assumed to exercise when they are sufficiently “in the money”. This is usually proxied as the share price exceeding a specified multiple of the strike price; this multiple, in turn, is often an empirically determined average for the company or industry in question.
The preference for lattice models is that these break the problem into discrete sub-problems, and hence different rules and behaviors may be applied at the various time/price combinations as appropriate. (The binomial model is the simplest and most common lattice model.) The "dynamic assumptions of expected volatility and dividends" (e.g. expected changes to dividend policy), as well as of forecast changes in interest rates (as consistent with today's term structure),[10] may also be incorporated in a lattice model, although a Finite difference model would be more correctly (if less easily) applied in these cases.[11] Black-Scholes may be applied to ESO valuation, but with an important consideration: option maturity is substituted with an "effective time to exercise", reflecting the impact on value of vesting, employee exits and suboptimal exercise. [12] For modelling purposes, where Black-Scholes is used, this number is (often) estimated using SEC Filings of comparable companies. For reporting purposes, it can be found by calculating the ESO's Fugit - "the (risk-neutral) expected life of the option" - directly from the lattice, [13] or back-solved such that Black-Scholes returns a given lattice-based result.
The work of Carpenter (1998) is acknowledged as the first attempt at a thorough treatment of the problem in light of these features,[14] and, more recently the Hull-Whitemodel (2004) is widely used;[15] see also Rubinstein (1995). These approaches are essentially modifications of the standard binomial model (although may sometimes implemented as a Trinomial tree). See below for further discussion, as well as calculation resources. Although the Black–Scholes model is still applied by the majority of public and private companies,[citation needed] through September 2006, over 350 companies have publicly disclosed the use of a (modified) binomial model in SEC filings. [citation needed] Often, the inputs to the pricing model may be difficult to determine [12] — usually stock volatility, expected time to expiration, and relevant exercise multiples — and a variety of commercial services are now offered here.
Accounting and taxation treatment
GAAPMain article: Stock option expensing
The US GAAP accounting model for employee stock options and similar share-based compensation contracts changed substantially in 2005 as FAS123 (revised) began to take effect. According to US generally accepted accounting principles in effect before June 2005, principally FAS123 and its predecessor APB 25, stock options granted to employees did not need to be recognized as an expense on the income statement when granted if certain conditions were met, although the cost (expressed under FAS123 as a form of the fair value of the stock option contracts) was disclosed in the notes to the financial statements.
This allows a potentially large form of employee compensation to not show up as an expense in the current year, and therefore, currently overstate income. Many assert that over-reporting of income by methods such as this by American corporations was one contributing factor in the Stock Market Downturn of 2002.
Employee stock options have to be expensed under US GAAP in the US. Each company must begin expensing stock options no later than the first reporting period of a fiscal beginning after June 15, 2005. As most companies have fiscal years that are calendars, for most companies this means beginning with the first quarter of 2006. As a result, companies that have not voluntarily started expensing options will only see an income statement effect in fiscal year 2006. Companies will be allowed, but not required, to restate prior-period results after the effective date. This will be quite a change versus before, since options did not have to be expensed in case the exercise price was at or above the stock price (intrinsic value based method APB 25). Only a disclosure in the footnotes was required. Intentions from the international accounting body IASB indicate that similar treatment will follow internationally.
As above, "Method of option expensing: SAB 107", issued by the SEC, does not specify a preferred valuation model, but 3 criteria must be met when selecting a valuation model: The model is applied in a manner consistent with the fair value measurement objective and other requirements of FAS123R; is based on established financial economic theory and generally applied in the field; and reflects all substantive characteristics of the instrument (i.e. assumptions on volatility, interest rate, dividend yield, etc.) need to be specified.
TaxationBecause most employee stock options in the US are non-transferable, they are not immediately exercisable although they can be readily hedged to reduce risk. The Canada Revenue Agency, and Revenue Quebec considers that their "fair market value" cannot be "readily determined", and therefore "no taxable event" occurs when an employee receives an option grant. Depending on the type of option granted, the employee may or may not be taxed upon exercise. Non-qualified stock options (those most often granted to employees) are taxed upon exercise. Incentive stock options (ISO) are not, assuming that the employee complies with certain additional tax code requirements. Most importantly, shares acquired upon exercise of ISOs must be held for at least one year after the date of exercise if the favorable capital gains taxes are to be achieved.
However, taxes can be delayed or reduced by avoiding premature exercises and holding them until near expiration day and hedging along the way. The taxes applied when hedging are friendly to the employee/optioned.
Excess tax benefits from stock-based compensationThis item of the profit-and-loss (P&L) statement of companies' earnings reports is due to the different timing of option expense recognition between the GAAP P&L and how the IRS deals with it, and the resulting difference between estimated and actual tax deductions.
At the time the options are awarded, GAAP requires an estimate of their value to be run through the P&L as an expense. This lowers operating income and GAAP taxes. However, the IRS treats option expense differently, and only allows their tax deductibility at the time the options are exercised/expire and the true cost is known.
This means that cash taxes in the period the options are expensed are higher than GAAP taxes. The delta goes into a deferred income tax asset on the balance sheet. When the options are exercised/expire, their actual cost becomes known and the precise tax deduction allowed by the IRS can then be determined. There is then a balancing up event. If the original estimate of the options' cost was too low, there will be more tax deduction allowed than was at first estimated. This 'excess' is run through the P&L in the period when it becomes known (i.e. the quarter in which the options are
exercised). It raises net income (by lowering taxes) and is subsequently deducted out in the calculation of operating cash flow because it relates to expenses/earnings from a prior period.
Employee benefits and (especially in British English) benefits in kind (also called fringe benefits, perquisites, or perks) include various types of non-wage compensation provided to employees in addition to their normal wages or salaries.[1] In instances where an employee exchanges (cash) wages for some other form of benefit is generally referred to as a 'salary packaging' or 'salary exchange' arrangement. In most countries, most kinds of employee benefits are taxable to at least some degree.
Examples of these benefits include: housing (employer-provided or employer-paid), group insurance (health, dental, life, etc.), disability income protection, retirement benefits, daycare, tuition reimbursement, sick leave, vacation (paid and non-paid), social security, profit sharing, employer student loan contributions, and other specialized benefits.
The purpose of employee benefits is to increase the economic security of staff members, and in doing so, improve worker retention across the organization. As such, it is one component of reward management.
The term perks is often used colloquially to refer to those benefits of a more discretionary nature. Often, perks are given to employees who are doing notably well and/or have seniority. Common perks are take-home vehicles, hotel stays, free refreshments, leisure activities on work time (golf, etc.), stationery, allowances for lunch, and—when multiple choices exist—first choice of such things as job assignments and vacation scheduling. They may also be given first chance at job promotions when vacancies exist.
In CanadaEmployee benefits in Canada usually refer to employer sponsored life, disability, health, and dental plans. Such group insurance plans are a top-up to existing provincial coverage. An employer provided group insurance plan is coordinated with the provincial plan in the respective province or territory, therefore an employee covered by such a plan must be covered by the provincial plan first. The life, accidental death and dismemberment and disability insurance component is an employee benefit only. Some plans provide a minimal dependent life insurance benefit as well. The healthcare plan may include any of the following: hospital room upgrades (Semi-Private or Private), medical services/supplies and equipment, travel medical (60 or 90 days per trip), registered therapists and practitioners (i.e. physiotherapists, acupuncturists, chiropractors, etc.), prescription requiring drugs, vision (eye exams, contacts/lenses), and Employee Assistance Programs. The dental plan usually includes Basic Dental (cleanings, fillings, root canals), Major Dental (crowns, bridges, dentures) and/or Orthodontics (braces).
Other than the employer sponsored health benefits described above, the next most common employee benefits are group savings plans (Group RRSPs and Group Profit Sharing Plans) which have tax and growth advantages to individual saving plans. Profit sharing refers to various incentive plans introduced by businesses that provide direct or indirect payments to employees that depend on company's profitability in addition to employees' regular salary and bonuses. In publicly traded companies these plans typically amount to allocation of shares to employees.
The profit sharing plans are based on predetermined economic sharing rules that define the split of gains between the company as a principal and the employee as an agent. [1] For example, suppose the profits are x, which might be a random variable. Before knowing the profits, the principal and agent might agree on a sharing rule s(x). Here, the agent will receive s(x) and the principal will receive the residual gain x-s(x)]
GainsharingGainsharing is a program that returns cost savings to the employees, usually as a lump-sum bonus. It is a productivity measure, as opposed to profit-sharing which is a profitability measure. There are three major types of gainsharing:
Scanlon plan : This program dates back to the 1930s and relies on committees to create cost-sharing ideas. Designed to lower labor costs without lowering the level of a firm's activity. The incentives are derived as a function of the ratio between labor costs and sales value of production (SVOP).
Rucker plan: This plan also uses committees, but although the committee structure is simpler the cost-saving calculations are more complex. A ratio is calculated that expresses the value of production required for each dollar of total wage bill.
Improshare: Improshare stands for "Improved productivity through sharing" and is a more recent plan. With this plan, a standard is developed that identifies the expected number of hours to produce something, and any savings between this standard and actual production are shared between the company and the workers.
Salary A salary is a form of periodic payment from an employer to an employee, which may be specified in an employment contract. It is contrasted with piece wages, where each job, hour or other unit is paid separately, rather than on a periodic basis. From the point of view of running a business, salary can also be viewed as the cost of acquiring and retaining human resources for running operations, and is then termed personnel expense or salary expense. In accounting, salaries are recorded in payroll
accounts.[1] Salary is a fixed amount of money or compensation paid to an employee by an employer in
return for work performed. Salary is commonly paid in fixed intervals, for example, monthly payments of one-twelfth of the annual salary.
Salary is typically determined by comparing market pay rates for people performing similar work in similar industries in the same region. Salary is also determined by leveling the pay rates and salary ranges established by an individual employer. Salary is also affected by the number of people available to perform the specific job in the employer's employment locale
WageA wage is monetary compensation (or remuneration, personnel expenses, labor) paid by an employer to an employee in exchange for work done. Payment may be calculated as a fixed amount for each task completed (a task wage or piece rate), or at an hourly or daily rate, or based on an easily measured quantity of work done.
Wages are an example of expenses that are involved in running a business.
Payment by wage contrasts with salaried work, in which the employer pays an arranged amount at steady intervals (such as a week or month) regardless of hours worked, with commission which conditions pay on individual performance, and with compensation based on the performance of the company as a whole. Waged employees may also receive tips or gratuitypaid directly by clients and employee benefits which are non-monetary forms of compensation. Since wage labour is the predominant form of work, the term "wage" sometimes refers to all forms (or all monetary forms) of employee compensation.
Origins and necessary componentsWage labour involves the exchange of money for time spent at work (the latter quantity is termed labor power by Marx and subsequent economists). As Moses I. Finley lays out the issue in The Ancient Economy:
The very idea of wage-labour requires two difficult conceptual steps. First it requires the abstraction of a man's labour from both his person and the product of his work. When one purchases an object from an independent craftsman … one has not bought his labour but the object, which he had produced in his own time and under his own conditions of work. But when one hires labour, one purchases an abstraction, labour-power, which the purchaser then uses at a time and under conditions which he, the purchaser, not the "owner" of the labour-power, determines (and for which he normally pays after he has consumed it). Second, the wage labour system requires the establishment of a method of measuring the labour one has purchased, for purposes of payment, commonly by introducing a second abstraction, namely labour-time.[1]
The wage is the monetary measure corresponding to the standard units of working time (or to a standard amount of accomplished work, defined as a piece rate). The earliest such unit of time, still frequently used, is the day of work. The invention of clocks coincided with the elaborating of subdivisions of time for work, of which the hour became the most common, underlying the concept of an hourly wage.[2][3]
Wage DifferencesEven in countries where market forces primarily set wage rates, studies show that there are still differences in remuneration for work based on sex and race. For example, according to the U.S. Bureau of Labor Statistics, in 2007 women of all races made approximately 80% of the median wage of their male counterparts. This is likely due to the supply and demand for women in the market because of family obligations.[7] Similarly, white men made about 84% the wage of Asian men, and black men 64%.[8] These are overall averages and are not adjusted for the type, amount, and quality
of work done. Labour law
Labour law (also labor law or employment law, see spelling differences) mediates the relationship between workers (employees), employers, trade unions and the government. Collective labour law relates to the tripartite relationship between employee, employer and union. Individual labour law concerns employees' rights at work and through the contract for work. Employment standards are social norms (in some cases also technical standards) for the minimum socially acceptable conditions under which employees or contractors are allowed to work. Government agencies (such as the former US Employment Standards Administration) enforce labour law (legislative, regulatory, or judicial). Canadian labour law is that body of law which regulates the rights, restrictions obligations of trade unions, workers and employers in Canada. Canadian employment law is that body of law which regulates the rights, restrictions obligations of non-unioned workers and employers in Canada.
FrameworkBoth the federal and provincial (or territorial) governments have authority over labour and employment law in Canada. The constitution [1] gives exclusive federal jurisdiction over employment in specific industries, such as banking, radio and TV broadcasting, inland and maritime navigation and shipping, inland fishing, as well as any form of transportation that crosses provincial boundaries. Employment that is not subject to federal jurisdiction is governed by the laws of the province or territory where the employment takes place.
In areas of unrestricted provincial jurisdiction, each province (and increasingly each territory) is in charge. So, for example, education (except education on First Nation reserves) and municipal government are both subject to provincial legislation (the territories excepted).
While Quebec's statutory environment is considerably different in many respects, most provinces and the federal Code all follow the standard of enterprise-based bargaining structures. They also share a certification process (the details of which differ somewhat from province to province) through which unions are recognized by the state as having the support of a majority of workers in a narrowly defined workplace. In Quebec, the Civil Code governs labor relations in the province.
One feature common to all provincial and federal labor laws is the "Rand Formula". This legal concept allows employees in unionized workplaces to decline union membership but requires them to pay the equivalent of basic union dues even if they decide not to be union members.
We follow the Ontario Government Employment Standards Act.
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