Page 229 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Management Control Systems

Notes
3. A bonus award from business unit manager can be determined on the basis of:
(a) Percentage of business units’ operating profit

(b) New products developed
(c) Share of markets
(d) All of the above
4. Employees usually receive their bonus over a period of years, usually five. What
is this method of payment of bonus called?
(a) Deferred (b) Carry over
(c) Bonus pool (d) Delayed payments

5. What is the basic assumption that the manager makes while implementing “loose
controls.
(a) The business unit managers are efficient

(b) The business unit managers are efficient but are to be monitored
(c) Implementing tight control is more difficult than implementing loose
controls

6. In which of the following incentive plans are managers awarded a specified
number of shares when they meet specific long-term goals?
(a) Phantom shares (b) Stock options

(c) Performance shares (d) None of the above
7. Shareholders collectively vote on a formula to arrive at the total amount of
bonus that can be paid in a given year. What is the kind of incentive?

(a) Bonus tool (b) Bonus pool
(c) Bonus sharing (d) Profit sharing

11.7 Summary

 The incentive compensation system is a key management control device. Incentive
compensation plans can be divided into: Short-term incentive plans, Long-term incentive
plans.
 The basic premise of long-term incentive plans is the growth in the value of company
shares; reflect company’s long-run performance.
 A wide range of options exist in developing an incentive compensation package for
business-unit managers.
 Under fixed pay, compensation comes first and performance comes later, under
performance-based pay, performance comes first and compensation comes later.

 Identification can be done in two ways for evaluating the effectiveness of a formal control
system: (a) Based on output criteria and (b) Input-related criteria.

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