Page 218 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Sukhpreet Kaur, Lovely Professional University
Unit 11: Management Compensation

Unit 11: Management Compensation Notes

CONTENTS
Objectives
Introduction
11.1 Characteristics of Incentive Compensation Package
11.2 Short-term Incentive Plans
11.3 Long-term Incentive Plans
11.3.1 Incentive for Corporate Officers
11.3.2 CEO’s Compensation
11.4 Incentives for Business Unit Managers
11.5 Performance Criteria

11.6 Criteria for Evaluating Effectiveness of a Formal Management
11.6.1 Output Criteria
11.6.2 Input-related Criteria
11.7 Summary
11.8 Keywords
11.9 Review Questions
11.10 Further Readings

Objectives

After studying this unit, you will be able to:

 Identify the characteristics of incentive compensation package
 Explain the short-term incentive plans
 Discuss the long-term incentive plans
 Describe the incentives for business unit managers

 Explain the executive summary
 Identify the criteria for evaluating effectiveness of a formal management control system

Introduction

The incentive compensation system is a key management control device. Since it is an important
mechanism that encourages and motivates managers to achieve organizational objectives.
Incentives tend to support the following:
1. Individuals get strongly motivated by the potential of earning rewards than the fear of
punishment.
2. A personal reward is relative or situational. Monetary compensation is an important
means of satisfying certain needs but beyond a satisfying level, the amount of compensation
is not necessarily as important as non-monetary rewards.

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