Incentive pay
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Incentive Pay. Incentive Pay. Basic issues Types of incentives Executive incentives...a special case. Incentive Pay: Basic Issues. “Compensation that rewards an employee for efforts beyond normal performance expectations” Why incentives? Control costs (pay contingent on performance)

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Incentive Pay

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Incentive pay

Incentive Pay


Incentive pay1

Incentive Pay

  • Basic issues

  • Types of incentives

  • Executive incentives...a special case

MGMT 412 | Incentive Pay


Incentive pay basic issues

Incentive Pay: Basic Issues

  • “Compensation that rewards an employee for efforts beyond normal performance expectations”

  • Why incentives?

    • Control costs (pay contingent on performance)

    • Motivate employees (pay contingent on performance)

  • Decisions to make

    • What’s rewarded

      • Extra time worked

      • Results / outcomes

    • Basis of reward

      • Individual

      • Group / department

      • Company

MGMT 412 | Incentive Pay


A good incentive plan

A Good Incentive Plan...

  • Perceived as fair (not a reward for sucking up !)

  • Aimed toward controllable behaviors

  • Understandable to the user

  • Challenging but realistic

  • Clear objectives on front end

  • Reward desired behaviors (easier said than done...)

Equity Theory

Goal Setting

Behavior Modification

MGMT 412 | Incentive Pay


Payment for time worked

Payment for Time Worked

  • Overtime

    • Some legally required, but a reward nevertheless

    • Some not required by law, but by market

    • Can pay more OT than required by law

  • Shift differentials

  • Holiday pay

MGMT 412 | Incentive Pay


Payment for outcomes results

Payment for Outcomes / Results

  • Piece rate plans

  • Sales commissions

  • Other performance incentives

  • Spot bonuses (immediate, small cash / kind payments)

  • Overall plans

    • Profit sharing

    • Gainsharing

    • Stock purchase / option plans

MGMT 412 | Incentive Pay


Executive incentives

Executive Incentives

  • Very dependent on tax laws; idea is to get maximum tax advantage for firm and employee

  • Basis of reward

    • Profits

    • Stock price

    • Other (service, growth)

  • Issues

    • Timing

    • Investment needed?

    • Amounts

    • Link to performance ???

Carl Icahn

MGMT 412 | Incentive Pay


Is it too much

Is It Too Much????

* 2007 pay and incentives. All other numbers from DoL, May 2007 U.S. average

MGMT 412 | Incentive Pay


Some other ceos

Some Other CEOs

* 2003 employee bonuses (most recent info available) were average $10,800

MGMT 412 | Incentive Pay


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