Ateneo de Davao University
Jacinto Street, Davao City
S.Y. 2008 – 2009
Finance 222
A Case Study
Submitted to:
Mrs. Marietta Eliot-Pampanga
Submitted by:
2Mktg-A
Melvin Matthew Ty
Marianne Nizza Betanio
Eula Rose Chua
Jedidiah Badayos
Alisa Zulueta
Chuck Allie Gepaya
James Regner
Background of the study:
1.) Organizational structures developed from the ancient times of hunters
and collectors in tribal organizations through highly royal and clerical power
structures to industrial structures and today's post-industrial structures.
An organizational structure is a mostly hierarchical concept of
subordination of entities that collaborate and contribute to serve one common
aim.
Organizations are a number of clustered entities. The structure of an organization
is usually set up in one of a variety of styles, dependent on their objectives and
ambience. The structure of an organization will determine the modes in which it
shall operate and will perform.
Organizational structure allows the expressed allocation of responsibilities for
different functions and processes to different entities. Ordinary description of
such entities is as branch, site, department, work groups and single people.
Contracting of individuals in an organizational structure normally is under timely
limited work contracts or work orders or under timely unlimited employment
contracts or program orders.
Common success criteria for organizational structures are:
• Decentralized reporting
• Flat hierarchy
• High transitory speed
• High transparency
• Low residual mass
• Permanent monitoring
• Rapid response
• Shared reliability
2.) Employee ownership occurs when a corporation is owned in whole or in part
by its employees. Employees are usually given a share of the corporation after a
certain length of employment or they can buy shares at any time. A corporation
owned entirely by its employees (such as a worker cooperative) will not,
therefore, have its shares sold on public stock markets. Employee-owned
corporations often adopt profit sharing where the profits of the corporation are
shared with the employees. They also often have boards of directors elected
directly by the employees. Some corporations make formal arrangements for
employee participation, called Employee Stock Ownership Plans (ESOPs).
Employee ownership appears to increase production and profitability, and
improve employees' dedication and sense of ownership. However, critics caution
that democratic leadership can lead to slow decision-making, and employee
stock ownership can increase employees' financial risk if the company does
poorly. Notable employee-owned corporations include the John Lewis
Partnership in the UK, and the US firm Tribune Company.
Most features of employee-owned corporations described in this article are not
specific to any one nation. The information on taxation and stock trading refers to
United States law and may differ elsewhere.
The disadvantage of ESOP:
Diversification has been cited as an issue, and there are examples to
support this belief. Employees at companies such as Enron and WorldCom lost
much of their retirement savings by over-investing in company stock in their
401(k) plans, though these specific companies were not employee-owned. But,
studies in Massachusetts, Ohio, and Washington state show that, on average,
employees participating in the main form of employee ownership, employee
stock ownership plans (ESOPs), have considerably more in retirement assets
than comparable employees in non-ESOP firms. The most comprehensive of the
studies, a report on all ESOP firms in Washington state, found that the retirement
assets were about three times as great, and the diversified portion of employee
retirement plans was about the same as the total retirement assets of
comparable employees in equivalent non-ESOP firms. Wages in ESOP firms
were also 5% to 12% higher. National data from Joseph Blasi and Douglas Kruse
at Rutgers shows that ESOP companies are more successful than comparable
firms and, perhaps as a result, were more likely to offer additional diversified
retirement plans alongside their ESOPs. The data is also available at
www.nceo.org.
Employee ownership in 401(k) plans, however, is more problematic. About 17%
of total 401(k) assets are invested in company stock--more in those companies
that offer it as an option (although many do not). This may be an excessive
concentration in a plan specifically meant to be for retirement security. In
contrast, it may not be a serious problem for an ESOP or other options, which
are meant as wealth building tools, preferably to exist alongside other plans.
Detailed data on 401(k) plan investments are available at www.ebri.org, the
home page of the Employee Benefits Research Institute.
3.) Risk aversion is a concept in economics, finance, and psychology
related to the behavior of consumers and investors under uncertainty. Risk
aversion is the reluctance of a person to accept a bargain with an uncertain
payoff rather than another bargain with a more certain, but possibly lower,
expected payoff.
The inverse of a person's risk aversion is sometimes called their risk tolerance
Problem:
How important is organizational form?
Follow up question: What is the impact of this on the profitability of firms?
SWOT Analysis:
Strengths:
-All workers (who are also part-owners) own a significant share of the firm and
their profits.
-Workers have long-lasting high motivation and productivity.
-They are able to attain more customer trust since shares that workers own are
directly from the company.
Weaknesses:
-The mistake of one worker will affect all other workers.
-Individual profits decrease as the number of part-owners increase
Opportunities:
-Other organizations may adapt their legislation, which will lead to the
widespread and further institution of ESOP.
Threats:
-Discretionary behavior may not lead to wealth maximization of the owners.
Recommendations:
In an enterprise that uses this legislation, a part owner must have a high
risk tolerance in order to make the best decisions. One must consider the risks
involved before taking incentives. Also, having the best co-owners is mandatory;
everybody must have a fixed and uniform level of productivity. Decisions must
be made within everyone’s best interests.
REFERENCE:
http://en.wikipedia.org/wiki/Organizational_structure
http://en.wikipedia.org/wiki/ESOP
http://en.wikipedia.org/wiki/Risk_averse
Questions:
1.) There is a claim above that most individuals are “risk averse”. Consider
this characteristic carefully and suggest whether or not it is likely to lead to
different decisions being taken based on ownership (i.e. if you are the
owner of a firm, do you take less risky decisions rather than more risky
ones which might result in a major strategic error and the loss of the
business?).
It is more likely to lead to different decisions based on ownership.
An owner of a firm us ensure the safety of the business and must
not take big risks. Before thinking of the benefits, one must consider
the possible losses and factors at stake. It is advisable to take the
less-riskier decisions because even though there are lesser
benefits, the losses are also lesser.
2.) If individuals are employees of large firms, will they be more or less willing
to implement riskier strategies due to the limited liability of the company
and the knowledge that their salary is unlikely to be affected?
If individuals are employees of large firms, they will be more likely
to implement riskier strategies. Since there is limited liability, there
is much less to lose and more room to take risks.
3.) If the workers are part owners of the company you might expect them to
be more highly motivated and productive as they will share in the profits of
the firm. Is this likely to be a long-term phenomenon or is it likely to wear
off in a couple of years, with the workers going back to the levels of
productivity they had achieved before?
Workers who are part owners of a company do have high
motivation and productivity, and it is more likely for that level of
performance to be sustained even in the long run. They are
motivated by the fact that the profits go to them since they are all
owners. Also, one cannot afford to lessen his/her performance
because every other part owner will be affected.
