Incentives for Corporate Officers Un the percedtiny tind the next, we huts inn, we deseribed hove t scribe how the total is dividh ra twapestively officer, 8 responsible in part for the ei by, and entitle toa ied ears) Huan esunaEEe ee fi De chet en performance: chs am necessarily auljeetive. Sotne cumpanies use n san Agement hy objectives system (MEON in wl ich specific ubjectives are agreed upe beganning of the year anil their atta w chief executive afficer CEO Compensation ‘The chief execution of tion usually ts discussed by’ ented recommend ri the appropriate p ts fairly abbsinus from this presentatin ay simply apply the same percentay entage of incentive eam Tn giilinary cirmstaticen 1 the CEOs compensation. Himever, age. Tiss p 1 ts a eritical sigan of have the beard el by a frank explanation af the fue than any other expression of the ba stare the CEO's pert wns for thie ecision, weer FO cons Chacter 12 Maanzroent Compensation $20 Are chief executive oflicers paid ton much? Thin issue has become very bi business world has been rocked bya series uf seatdals aver the the bursting of the Internet bubble, and moving on tu problen whicl have greatly affected several other leading companies, One 1 of these scandals sh to aubstantally reform corporate guvernance in ariter to trstare i Jeral proposals have been mare ta ensure that th rectors acta st of shareholders and does aot work ot the mercy of C event directors them to ask the questions of CEOs yithiat fear ofadversely impacting ahorteterin stick pric -y hints un the tenure of directors to avoid thar become tow ent Jf antual performance review of directors, 44 Avwit Ivtebated sus the rndustry—all uf re hase Deen several eames 1 Sev, for example the well publicited eacenn York Stack Exchange’, Dents Rol Huetant Grass Hemlett-ackanis ideuts, shaveluoiers (ine revetved paneiEXHIBIT 12.1 Incentive Compensation Design Options for Business Unit Managers | Chaptét 12) Management Compensation A. Types of Incentives 1. Firancial Rewards 2. Salary increase b. Bonuses Benefits od. Perquisites 2. Psychological and Social Rewards 2. Promotion possiblities b Increased responsibilities € Increased autonomy Better geographical location ©. Recognition B. Size of Bonus Relative to Salary 1. Upper Cutosis 2 Lower Cutotts €. Bonus Based on 1. Business Unit Protits 2 Company Profits 3. Combination of the two D. Performance Criteria 1. Financial Criteria 2. Contribution margin b Dyrect business unt profit © Controllable business unit prolit W lncome before tines ¢ Net income 1. Retum en investinent 9, Economic value added 2TmePeiod | ff) a, Annual finsacal performance b. Muttiyeas finunchl petiormance 3. Nonfinancial Cetera a. fies nil by Market snare c Quatomer satidactian duality 0 Yew product development f Personnel development! i 4 Pubic texponstvity a 4. Relative Weights Assigned to Financial and Nontinaieisl Criteria 5. BenchmasAs tor Compariion a. Profit budget b Past pertormance . Competitor's performance E. Bonus Determination Approach 1 Formats. Base 2 Subectne 3 Combination of the Two F. Form of Bonus Payment 1. Cash 2. Stock 3. Stock Options 4 Phantom States 5. Performance Stuares Size of Ranus Relative to Salaryr sae fat hwo The Management Chntid Myeeee ney 8 ‘osteo Pea EXHINIT 122 Wo Hhitosuphios aan Tneontive Comporaation Pay seas dell | Hecrult gest proplt Expect goed prltnmbnick hie Vay them well if performance i} actually good