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Incentive Compensenation Programs

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Please see the attached and then help me answer the following questions:

1) What are the different incentive compensation plan options covered in the case?

2) What problems does each plan solve?

3) How might the EVA system influence the willingness of managers to accept job trans-fers across divisions at Duckworth Industries?

4) How should an incentive compensation plan adopted by a firm relate to its industry type, market stability, and to the economic health of the firm?

5) Should Duckworth Industries adopt the proposed EVA system? Explain your answer.

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Solution Summary

The benefits of incentive compensation programs are examined. The problem that each one solves is determined.

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What are the different incentive compensation plan options covered in the case? What problems does each plan solve?
The first compensation plan option is "pay for performance". The firm was paying incentives to plant-level employees if they are always on-time in their departments. This plan can help the company to increase attendance in the workplace to decrease inefficiencies. In the shift-supervisory level the incentives were paid according to specific goals such as meeting promised shipment days and reducing customer complaints. This plan helped to increase the overall customer satisfaction of operations. Another compensation program was a profit sharing which included all company employees. According to this plan, at the end of each year this profit sharing pool was allocated to all Duckworth employees based on their individual share of total wages and salaries in the business unit. There was also an individual incentive plan for sales and supervisory personnel. This enabled these employees to earn incentives according to accuracy of orders and sales growth levels. In this way employees were willing to make significant sacrifices to increase efficiency an productivity of operations. The fourth compensation plan covered senior managers who are ...

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Umut Oltulu, MBA
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  • BSc, Dokuz Eylul University
  • MBA, Texas A&M University-Kingsville
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