Chapter 12

Concept and Brief Discussion:

Incentive Pay for Executives: The book talks about two specific incentives for executives that attract leadership and influence performance. Short-term incentives include bonuses based on the year's profits, return on investment, or other measures related to the organization's goals. Long-term incentives include stock options and stock purchase plans. The rationale for these long-term incentives is that executives will want to do what is best for the organization because that will cause the value of their stock to grow. Controversy over high paid executives has recently been addressed as a public frustration. It appears that many top-level management employees are getting high incentives and compensation, even if their performance is low or the company they work for doesn't make profits.

The Hook:

You are on the board of directors for a large company, and you are currently reviewing the company's past year's performance. If the company is struggling, how much of the issues are due to poor strategic planning and execution by the top-level management at the company? What will you do to lessen the rewards for executives while keeping them fully vested in the company?

Key Points to Elicit in Discussion:

Company executives have a much stronger influence over the organization's performance than other employees do, so incentive pay is often offered as a way to show their importance and to persuade good performance. Much of executive's pay now comes from these short-term and long-term incentives. Long term incentives tend to be associated with greater profitability.

Facilitative Questions:

What kind of incentives do your employers have? How public is it discussed, and does it make any of you angry? How much is a really good executive worth?