INCENTIVES FOR MANAGERS AND EXECUTIVES

Most managers get short-term and long-term incentives in addition to salary. For firms offering short
term incentive plans, virtually all 96% provide those incentives in cash. About 48% offer them as stock
options. The purpose are to motivate them for the growth of the company, prosperity, and shareholder
value.

1. Strategy and the Executive s Long-Term Strategy and Total Rewards Package

Executives must align their incentives with the goal of achieving the company s strategic aims. Each pay
component should help focus the manager s attention. Multiple, strategy-based performance criteria is
best. Using financial performance, number of financial performance and number of strategic goals met,
performance assessment, and customer satisfaction surveys are among the measures that can be used
to measure executives' performance. The bottom line is that the top executive s pay package should
direct his or her attention toward accomplishing the company's strategic goals. The compensation
experts suggest first defining the strategic context for the executive compensation plan and then
deciding what long-term behaviors are required to achieve the companys goals.

2. Sarbanes-Oxley

The Sarbanes-Oxley Act of 2002 affects how employers formulate their executive incentive programs.
The act also requires CEOs and CFOs of a public company to repay any bonuses, equity-based
compensation. during the 12-month period following the issuance of a financial statement that the
company must restate due to material noncompliance with a financial reporting requirement stemming
from misconduct.
Short-Term Incentives and the Annual Bonus

Most firms have annual bonus plans for motivating manager’s short-term performance. Short-term
incentives can easily produce adjustments of 25% or more to total pay.

There are four factors influence one’s bonus: eligibility, fund size, individual performance,

And formula

1. Eligibility

Employers traditionally based annual bonus eligibility on job title, title, base salary, and/or base salary.
Some simply based bonuses on job level or job title. But recently, more employers are offering
executives as well as employees below the executive level single annual incentive plans. The percentage
size of the bonus is typically greater for top-level executives. A typical breakdown might be executives,
45% of base salary; supervisory personnel, 12%. The change reflects the fact that more employees not
just top managers are now responsible for (and thus rewarded for) measurable contributions. Rather
than job title or officer status, salary grade or band is now the most common eligibility determinant,

2. Fund Size