Term
| Size of bonus relative to salary (2 views) |
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Definition
1. Fixed pay
2. Performance-based system |
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Term
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Definition
| Pay people well and expect good performance. Pay comes first, before performance. |
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Term
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Definition
| Expect performance and pay them well if performance is actually good. |
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Term
| What impacts how popular these long-term compensation plans are among the mangers (3) |
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Definition
1. Income tax law
2. Changes in accounting treatment
3. State of the stock market |
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Term
| Long-term incentive plans (5) |
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Definition
1. Stock options
2. Phantom shares
3. Stock appreciation rights
4. Performance shares
5. Performance units |
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Term
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Definition
| Direct managers energy towards l-t as well as s-t performance. |
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Term
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Definition
| awards managers for bookkeeping purposes only. issued to compensate for the appreciation in value of current shares. |
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Term
| Stock appreciation rights |
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Definition
| Rights to receive cash payments based on the increase in stock's value from the time of the award until a specified future date. |
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Term
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Definition
| Awards a specified number of shares of stock to a manager when specific l-t goals are met. |
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Term
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Definition
| CASH bonus (not shares) is paid when specific l-t targets are attained. Similar to performance shares. |
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Term
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Definition
| If a manager leaves before the bonus is entirely paid out, they will not get it |
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Term
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Definition
| Bonuses related less directly to current performance |
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Term
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Definition
| Bonuses can be carried from one year to the next |
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Term
| Total compensation package consists of 3 |
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Definition
1. salary
2. benefits
3. incentive compensation |
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Term
| incentive compensation (2) |
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Definition
1. S/t - based on current year performance
2. l/t based on price of company's stock |
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Term
| Bonus determination approach (2) |
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Definition
1. Strict formula
2. subjective approach by a superior
Can also have a combination of the 2 |
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Term
| When subjectivity is involved and mangers personal control over a unit's performance is low will happen when: (3) |
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Definition
1. B/u manager inherits problems from predecessor
2. B/U is highly interdependent with other units
3. Whens strategy requires much greater attention to l-t concerns |
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Term
| Research on incentive trends to support the following (7) First 3 |
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Definition
1. individuals tend to be more strongly motivated by the potential of earning rewards than by the fear of punishment.
2. A personal reward is relative or situational
3. If senior mgmt signals by its actions that it regards the MCS is important, operating mgs will also regard it as important. |
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Term
| Research on incentive trends to support the following (7)Last 4 |
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Definition
4. Individuals are highly motivated when they receive reports, or feedback about their performance. Without it they are unlikely to feel a sense of self-realization.
5. incentives become less effective as the period between action and feedback increases
6. Motivation is the weakest when the person believes and incentive is either unattainable or too easily attainable
7. Incentive that a budget or other statement of objective provides is strongest when mgrs work with their superiors to arrive at the budgeted amounts |
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Term
| Advantages of performance shares (2) |
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Definition
1. award is based on performance that the executive can control
2. Reward does not depend on an increase in stock prices. |
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Term
| How to establish the bonus pool (2) |
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Definition
1. make bonus equal to a set percentage of profits
2. use formulas that pay bonuses only after a specified return has been earned on capital |
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Term
| 1. Make bonus equal to a set percentage of profits |
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Definition
Still have to pay bonus when profits are low - companies don't like
Fails to recognize additional investments |
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Term
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Definition
1. Base bonus on a % of EPS after a predetermined level of EPS has been attained
2. Define capital as s/e+ltl
3. Define capital as = s/e
4. Base bonus on increases in profitability over the preceding year
5. Base bonus on their profitability relative to their industry |
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Term
| 2.1 Base bonus on a % of EPS after a predetermined level of EPS has been attained |
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Definition
| does not take into account icnreases in investment from reinvested earnings |
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Term
| 2.2 Define capital as s/e + ltl |
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Definition
- managerial performance should be based on employing corporate net assets profitably
- a loss year reduces the s/e and therefore increase the amount of bonus to be paid on profitable years
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Term
| 2.3 Define capital as = s/e |
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Definition
- a loss year reduces s/e and therefore increases amoutn of bonus to be paid in profitable years
- might tempt mgmt to take a 'big bath'
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Term
| 2.4 Base bonus on increases in profitability over the preceding year |
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Definition
- rewards a mediocre year that follows a poor one
- fails to reward good performance that follows and excellent year
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Term
| 2.5 base bonus on their profitability relative to their industry |
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Definition
- obtaining comparable data may be difficult
- could results in a high bonus in a mediocre year, because another company had a poor year.
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