Chapter 12: Incentive Plans and Executive Compensation

Ace your homework & exams now with Quizwiz!

Commission (unethically)

Only get paid for what you sell

Group/Team Results

"Self-funding" pay plans for groups/teams that reward through improved organizational results on the basis of group output, cost savings, or quality improvement

Effective Incentive Plan

*make sure plan rewards people for what they should be *mechanics say something is wrong to make money

Stock Option Plan

-A plan that gives employees the right to purchase a fixed number of shares of company stock at a specified price for a limited period of time (If market price of the stock is above the specified option price, employees can purchase the stock and sell it for a profit) (If the market price of the stock is below the specified option price, the stock option is "underwater" and is worthless to employees"

Employee Stock Ownership Plan (ESOP)

-A plan whereby employees gain significant stock ownership in the organization for which they work -Advantages: (Favorable tax treatment for ESOP earnings, Employees motivated by their ownership stake in the firm) -Disadvantages: (Retirement benefit tied to the firm's future performance, Management tool to fend off hostile takeover attempts)

Salary-Only

-All compensation is paid as a base wage with no incentives -Only get $50,000

Straight Commission

-Compensation is computed as a percentage of sales in units or dollars -The draw system makes advance payments against future commissions to the salesperson

Variable Pay

-Compensation linked to individual, group/team, and/or organizational performance -Pay varies with sales

Effective Incentive Plans

-Does the Plan Fit the Organization? -Does the Plan Reward the Appropriate Actions? -Is the Plan Administered Properly?

Group/Teamm

-Group team results -Gainsharing/goal sharing (set goal as x, will make more money if hit y or z) -Quality improvement -Cost reduction

Variable Pay Plans

-Individual -Group/Team -Organizational

Individual

-Piece-rate system (straight piece-rate system, sewing zipper, .25 per one) -Differential piece-rate system (.25 for the first 75, then $1 for the next 76-100) -Bonuses (spot bonuses) -Special incentive programs (trips, merchandise, awards, service- how long people worked there) -Sales compensation

Organizational

-Profit sharing (if make profit -> will share w/ employees) -Employee stock plans (A plan that gives employees the right to purchase a fixed number of shares of company stock at a specified price for a limited time) -Executive stock options -Deferred compensation

Problems with Group/Team Incentives

-Rewards in equal amounts may be perceived as "unfair" by employees who work harder, have more capabilities, or perform more difficult jobs -Group/team members may be unwilling to handle incentive decisions for co-workers -Many employees still expect to be paid according to individual performance

Distributing Rewards

-Same-size reward for each member -Different-size reward for each member

Piece-Rate Systems

-Straight piece-rate system -Differential piece-rate system

Gainsharing (Teamsharing or Goal Sharing)

-The sharing with employees of great-than-expected gains in productivity through increased discretionary efforts (Improshare, Scanlon Plan)

"Reasonableness" of Executive Compensation

Companies use to check themselves

Salary-Plus-Commission or Bonuses

Compensation is part salary for income stability and part commission for incentive

Spot Bonus

Employer sees someone do something so good that they give a bonus right there (in front of others)


Related study sets

NEW Marine Sciences: Secrets of the Blue. Units 1-10 quizzes

View Set

STUDY THIS Algebra IIb , Hypothesis Testing, Applications with Standard Normal Distribution, Binomial Distribution, Expected Value, Properties of Probability Distributions

View Set

19.3 Liability in Agency Relationships and Termination of an Agency

View Set

Strategic Management Exam 1 Practice questions

View Set

First Aid and Safety: Shock and Sudden Illness

View Set

Functional units of the organ systems

View Set