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Unit 11: Management Compensation

11.8 Keywords Notes

Bonus: Bonus equal to a set percentage of profits.
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.
Performance Units: In a performance unit plan, a cash bonus is paid on the attainment of specific
long-term targets.

Stock Appreciation Rights: A stock appreciation right is a right to receive cash payments based
on the increase in the value of shares from the time of the award until a specified future date.

11.9 Review Questions

1. What role management compensation plays in a management control system?

2. What are the characteristics of incentive compensation plans?
3. What are the long-term incentive plans?
4. How is incentive for corporate officers determined, including the CEO?

5. Describe the wide range of options available to business unit managers in developing an
incentive compensation package.
6. What should be the size of bonus relative to salary?

7. In deciding incentive, what performance criteria should be considered for the responsibility
centre? How should bonus be determined?

Answers: Self Assessment

1. Motivation 2. Bonus
3. Deferred bonus 4. Stock appreciation

5. Fixed pay 6. Single industry firm
7. Formal planning 8. Extrinsic

11.10 Further Readings

Books Anthony, Robert N and Govindrajan, Vijay, "Management Control System", Tata
McGraw Hill.

Kaura, Mohinder N, "Management Control and Reporting System", Response Books.
Maciariello, Joseph A. and Kirby Calvin J., Management Control Systems, 2nd
Edition, Prentice Hall of India Private Limited.

Merchant, Kenneth A, "Management Control System: Text and Cases", Pearson
Education Asia.
Saravanavel, P, "Management Control System", Himalaya Publishing House.

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