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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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Presentation Transcript
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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