milap thaker - incentive compensation as part of a total compensation strategy
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Incentive Compensation as Part of a Total Compensation
Strategy
Jacques Etame, Milap Thaker, and Vincent ZhangStrategic Human Capital
Arthur McCombs, ProfessorThe Johns Hopkins University
March 6, 2013
Topics to be Covered
Background Motivation: Practical Tools for MBA Students in
Financial Compensation Negotiations Incentive Compensation Methods
Individual Incentives Team Based Incentives Cash Awards Profit Sharing Vested Stock Options
Total Compensation Packages Variables in Compensation Packages Anchoring and Negotiation Strategy References
Background
Incentive compensation refers to financial methods used to compensate employees for their contributions. Some Examples:
▪ Individual Incentives▪ Team Based Incentives▪ Cash Awards▪ Profit Sharing▪ Vested Stock Options and Other Equity
Motivation and Goals
We all work for income and the ability to provide for ourselves and loved ones.
Our goal is to provide you with a blueprint on the various compensation methods available to empower your negotiations.
This powerpoint will demonstrate some of the major incentive compensation strategies as well as practical negotiation steps you can use in your own compensation negotiations.
Different Types of Bonuses
Sign-On Bonuses Given to new employees who
have just joined the company establish goodwill and to buy
out any compensation left on the table" from a
previous employer.
Retention Bonuses non-salary based, more
common in executives and management
maintain the workforce a solution provider wants
keep the competition from recruiting best employees
especially effective during M&As, corporate restructuring and relocations.
Project Completion Bonuses paid to team participants
assigned to specific projects typically 5 to 20 percent of
project total compensation short term (three to six
months). quantitative goals from a
project's start with fixed bonus amounts set based on the importance of individual's role
MBO Bonuses employees receive dollar value
for completing each assignment based on company priorities.
time bound offered quarterly or semi-annually.
built into employees' overall compensation plan with dollar value buckets from which quarterly project assignments are made.
Profit Sharing Bonuses require a person stay on
the job for a set amount of time before they receive payment
a percentage of the bonus is paid each year on a pre-designated date
Gain Sharing Bonuses most common in
manufacturing pay out quarterly or
monthly reward for statistical
improvements in production and quality
Different Types of Bonuses (cont’d)
Spot Bonuses reward employees on the spot for
achievements that deserve special recognition
typically $50 and up can be made by immediate
supervisor and any higher-level person or peer
allow employee to earn more than one instant bonus in a year
Noncash Bonuses special ceremony, certificate or
trophy sometimes coupled with a token
tangible award can instill pride and improve
employee morale if well designedhttp://www.salary.com/types-of-bonuses/http://www.klagroup.com/Resources/Articles/IncentiveBonusPlansforYourBestEmployees.php
Creative Incentives Canon Lifetime cumulative award system
Each suggestion is given a certain number of points, and every year President's Awards are given to the 20 people who have accumulated the most points since the system's inception. Each recipient receives a certain amount of money and a gold medal. Since this can get a bit repetitious, there are also Presidential Awards for the most points in a given year, the top 30 people receiving a smaller amount of money and silver medals.
http://www.1000ventures.com/business_guide/crosscuttings/motivating_incentive.html
Creative IncentivesCarbon Footprint Bonus
Set up in 2007 by engineering consultancy WSP
2,200 members in the last few years, available to employees at 15 organization.
Staff voluntarily agree to a personal carbon limit
They enter monthly output to a website The website calculates ongoing totals It then suggests ways to reduce emissions
If employees go over their limit -> No penalty If they go under -> an annual bonus in paycheck
Creative IncentivesCarbon Footprint Bonus (cont’d)
70% of members hit target every year getting about £100 in the U.K. ($100 in the U.S.). Annual target varies according to grid conditions and
car types, and falls every year. Some externalities
“Capping carbon can be effective--if not for actually cutting emissions directly, then at least for engaging employees on sustainability.”
“This a good way to increase understanding of environmental issues, and it does it in a subtle way, rather than being a formal training course.”
“People swap tips about sustainable living, “heroes” are recognized, and the peer group challenges itself.”
Creative IncentivesCarbon Footprint Bonus (cont’d)
http://www.fastcoexist.com/1679223/a-new-company-bonus-plan-reduce-your-footprint-earn-100
Youtube video:The surprising truth about what motivates us
http://www.youtube.com/watch?v=u6XAPnuFjJc&feature=youtu.be
The Power of Loss Aversion: A Field Experiment
3.• $4,000 bonus at the
beginning• more the students‘ scores
increased, more the teacher could keep.
• receive up to $8,000 by the end of the year if student scores improve
• No bonus upfront
http://techcrunch.com/2012/08/10/harvard-researchers-find-a-creative-way-to-make-incentives-work/
The Power of Loss Aversion: A Field Experiment (cont’d)
http://techcrunch.com/2012/08/10/harvard-researchers-find-a-creative-way-to-make-incentives-work/
Total Compensation Packages Total compensation can “far exceed base
salary.” Factors in a total compensation package:
Wages▪ Adjusted for cost of living?▪ Job performance adjusted?
Time off▪ Paid or unpaid▪ Maternity/Paternity leave?
Sick time Health insurance
▪ Medical▪ Dental▪ Vision
"Total Compensation." Total Compensation. 30 Oct. 2012. Web. 12 Mar. 2013. <http://blink.ucsd.edu/HR/comp-class/compensation/total.html>.
Total Compensation Packages (cont’d)
Non-traditional Benefits Company Car Cell Phone Service Office Equipment for Working at Home Housing Bereavement Pension ESOP
A Negotiation Matrix
Base Salary
70,000 80,000 90,000 100,000
Bonus 2% 3% 4% 5%
Location New York
Atlanta San Francisco
Seattle
Vacation 10 days 14 days 21 days 28 days
Health Plan
A B C D
Adapted from Course Notes: Negotiation, Carey Business School, Heather M. Williams, Professor. Coursepack from Harvard Business School Project on Negotiation.
Practical Negotiation Strategy
Anchoring Setting a first
offer initial price Creating the
bargaining range Zone of (realistic)
possible agreement
Finding a BATNA
Seek out MESOs Multiple
equivalent simultaneous outcome
Create a win-win outcome
Move from party positions to party interests
References
Ferenstein, Gregory. "Harvard Researchers Find A Creative Way To Make Incentives Work." TechCrunch. TechCrunch, 10 Aug. 2012. Web. 12 Mar. 2013. http://techcrunch.com/2012/08/10/harvard-researchers-find-a-creative-way-to-make-incentives-work/.
Kotelnikov, Vadim. "INCENTIVE MOTIVATION, INCENTIVES for EMPLOYEES - Understand the Power of an Incentive Program and Learn How To Organize and Promote It (Your First-ever Business E-Coach)." INCENTIVE MOTIVATION, INCENTIVES for EMPLOYEES - Understand the Power of an Incentive Program and Learn How To Organize and Promote It (Your First-ever Business E-Coach). Web. 12 Mar. 2013. <http://www.1000ventures.com/business_guide/crosscuttings/motivating_incentive.html>.
Lee, Kendra. "KLA Group Sales Article: Innovative Bonus Plans for Your Best Employees." KLA Group Sales Article: Innovative Bonus Plans for Your Best Employees. KLA Group Sales, Web. 12 Mar. 2013. <http://www.klagroup.com/Resources/Articles/IncentiveBonusPlansforYourBestEmployees.php>.
Miller, Stephen, CEBS. "Incentive Compensation Tips and Pitfalls Shared." Incentive Compensation Tips and Pitfalls Shared. Society for Human Resource Management, 1 June 2012. Web. 04 Mar. 2013.
Schiller, Ben. "A New Company Bonus Plan: Reduce Your Footprint, Earn $100." Co-Exist. Web. 12 Mar. 2013. <http://www.fastcoexist.com/1679223/a-new-company-bonus-plan-reduce-your-footprint-earn-100>.
"Total Compensation." Total Compensation. 30 Oct. 2012. Web. 12 Mar. 2013. <http://blink.ucsd.edu/HR/comp-class/compensation/total.html>.
Ueda, Dwight. "Types of Bonuses." Salary.com. Salary.com, Web. 12 Mar. 2013. <http://www.salary.com/types-of-bonuses/>.
Williams, Heather M. "Negotiation Strategy." Johns Hopkins Negotiation Course. 100 International Drive, Baltimore, MD. 4 Feb. 2013. Lecture.
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