Chapter 12: Incentive Plans & Executive Compensation
Differential Piece-Rate System
for every widget you make over the required number
Bonus
one-time payment that does not become part of the employee's base pay
Stock Options Plan
plan the gives employees the right to purchase a fixed number of shares of company stock at a specified price for a limited period of time
Perquisites (Perks)
special benefits -usually noncash items- given to executives
compensation committee
subgroup of the board of directors that is composed of directors who are not officers of the firm
Profit Sharing
system to distribute a portion of the profits of an organization to employees
Gainsharing
the sharing with employees of greater-than-expected gains in productivity through increased discretionary efforts
Long-Term Incentives
Most important -especially for retention
Incentive Plan Success
-Does the plan fit with business strategies and organizational goals?
Successful P4P Plans
-Link strategic business goals and employee performance -Achieve HR Objectives; retention, reduced turnover, `
Reasonableness of Executive Compensation
-Would another company hire this exec? -How does compensation compare with the market?
Profit Sharing Drawbacks
-disclosure of financial information -variability of profits from year to year
Design of Group/Team Incentives
-distribution -timing
Executive Compensation
-exec salaries -benefits -perks
Ineffectiveness of Sales Incentive Plans
-frequent changes in sales plans -entitlement culture -pay without performance
Why use Variable Pay Plans for Groups/Teams?
-improves productivity -tie pay to team performance
Profit Sharing Objectives
-increase productivity and organizational performance -attract or retain employees
Why Incentive Plans Fail
-not desirable -doesn't reward doing a good job -doesn't motivate
Problems with Group/Team incentives
-reward in equal amounts deemed unfair -members unwilling to handle decisions for rewards of the others
Distributing Rewards
-same sized reward for each member -different sized reward for each member
Piece-Rate Systems
Certain amount per widget made or per so many made
Employee Stock Ownership Plan
Employees are motivated by their ownership stake in the firm
Straight piece-rate system
Pay system in which wages are determined by multiplying the number of units produced by the piece rate for one unit
Salary Only Sales Compensation Plan
all compensation is paid as a base wage with no incentives
the draw system
amount advanced against, and repaid from,future commissions earned by the employee
"Straight" Commission
compensation is computed as a percentage of sale in units or dollars
Salary Plus Commission
compensation is part salary for incomes stability and part commission for incentive
Variable Pay
compensation linked to individual, group/team, and/or organizational performance