1. Incentive Pay

2. Incentive Pay • Basic issues • Types of incentives • Executive incentives...a special case MGMT 412 | Incentive Pay

3. 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

4. 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

5. 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

6. 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

7. 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

8. Is It Too Much???? * 2007 pay and incentives. All other numbers from DoL, May 2007 U.S. average MGMT 412 | Incentive Pay

9. Some Other CEOs * 2003 employee bonuses (most recent info available) were average $10,800 MGMT 412 | Incentive Pay