Page 224 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Unit 11: Management Compensation

(f) Personnel development Notes
(g) Public responsibility
(iv) Relative weights assigned to financial and non-financial criteria
(v) Benchmarks for comparison

(a) Profit budget
(b) Past performance
(c) Competitors performance.
5. Bonus determination approach:

(i) Formula based
(ii) Subjective
(iii) Combination of the two
6. Form of bonus payment:

(i) Cash
(ii) Stock
(iii) Stock options
(iv) Phantom shares

(v) Performance shares
Size of Bonus relative to Salary: There are two philosophies on incentive compensation:
Fixed pay and Performance based pay as given below:

!
Caution Under fixed pay, compensation comes first and performance comes later, under
performance-based pay, performance comes first and compensation comes later.
The two philosophies have different motivational implications for managers. Since salary is an
assured income, an emphasis on salary may lead to conservatism and complacency. An emphasis
on incentive bonus on the other hand tends to encourage managers to put forth maximum effort
hence, many companies emphasize incentive bonuses for business unit managers.

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