Management Incentives

Several Studies have shown certain striking observation one of which is that the characteristic of professional and managerial employees are different from those of factory employees. Lee Danielson found that successful engineers and scientist have certain distinctive characteristic that apply to other professionals and managerial employees. They are:

1. They are highly intelligent. 2. They have an analytical frame of mind and preference for deductive reasoning. 3. As a group, they tend to be more creative and imaginative than others. 4. They usually both independent and self-conscious.

5. As a group, they to be idea- and thought oriented rather than people-oriented. 6. By and large, these professionals are economically advanced to the point where income is valued not only for its purchasing power but also for the status it confers and the recognition it implies. 7. They are highly mobile.

Management low productivity is often caused by the lack of understanding of the relationship between performance and money. Moreover, managers often failed to see that the only way a company can pay more is for productivity to increase. For gain in productivity. Then, it is necessary to motivate managers to pass on the benefits of their ingenuisty to the company. Money is still up the primary motivation tool. Regardless of how the term is used, whether incentive plan or incentive bonus . It is still the basic reward that counts. With it, Managers are motivated to improved their job performance. Without it or inadequacy of rewards, however, a considerable number of companies fail to fully utilize the power of money.

The concept of money as a motivator is anchored on a theoretical base, that is, manager who want more pay and who believed making their department more productive and cost effective will result in more pay, will work harder and better to get that pay.
Compensation experts continue to advice companies to structure their compensation plans for managers with an incentive plan as its basis. Such advice is made in the light o9f present conditions today, that is, of the many compensation plans in existence today, relatively few apply to executives and managers.

Since Executives and managers performance is difficult to measures , most companies have no systematic program with regards to compensation packages for them. Rather, they make subjective determinations influenced by the availability of executive and managerial personnel that possess the desired skills. Bonus, profit sharing, and stock option plans are now being resorted to, along with fringe benefits designed to increase the real income while keeping taxable income at a minimum.

Rewards decisions have an influence that is broader than their impact upon the individual employee, manager, and organization involved in the immediate decision. Cumulatively, these decisions add up to a distribution of a large part of the wealth of an entire economic system. Distribution theory, a significant body of economic thought, has dealt with the subject of the determinants of the distribution of national income for many years. This fact lends credence to the importance of rewards decisions.

There is a growing recognition that incentives focus a managers attention on results, while encouraging individual initiative, innovation and efficiency. And properly designed and implemented, management incentive plans are self-funding. One major reason for the limited use of management incentive plans is anchored on a philosophical base: many companies simply find it difficult to accept that they must pay bonuses in order to improve performance. In fact, they hold on to the notion that every management position has a going rate or what amounts to a standard pay range.

Another reason for the hesitancy on the part of some companies to improve their compensation package insofar as managerial employees are concerned stems from the fear that such an incentive plan may allow a manager to earn substantially more money than top management. This fear continues to echo and re-echo especially in smaller and mid-size companies where higher management positions are often held by shareholders. One other reason that explains why a number of companies do not adopt management incentive plans is a practical one. It is at times difficult to fairly review performance since there does not exist any method by which a distinction could be made with respect to poor, satisfactory, good, or excellent performance. To many then, good performance is rather ambiguous and deceptive of precise definition or decision when applied to managers.

Cost benefit analysis-estimates and totals up the equivalent money value of the benefits and costs to the community of projects to establish whether they are worthwhile. Company analysis-No incentive plan is tailored-cut to suit the needs of ever company. Thus, any such plan must always be based on a thorough analysis of company operations, personnel and finances.

Participation- The coverage of plan must be delineated, that is, it is limited only to those managers who directly and significantly affect company performance.
Plan Structure- To make the incentive plan success, the structure must be made simple, easy to understand and implement. Substantial rewards- The rewards offered under the incentive plan must be fairly substantial. Otherwise, managers may not even give it a thought.

Sharing rate- maximum amount that any one manager can earn should be open-ended.
No-bonus zone- purposes of stressing emphasis on superior performance. Payout provisions- The matter of payment of rewards should also be clearly spelled out. Emphasis on long-term results- Every incentive plan must be anchored on longterm company growth and profitability must be its sole basis.

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Management incentive plans must generate an increase in profits greater than the cost of the rewards. Companies must accept the philosophy that performance should be rewarded. Management/ shareholders cannot be threatened by the possibility that other managers will earn more. Managers must put a high value on money. Money must be tied performance. Managers must perceive that as their efforts increase, performance will increase accordingly. Managers must perceive a high probability of achieving rewards.

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Management incentives plans can greatly improve company profitability. But they must be expertly drafted and applied. Rewards must be substantial, performance standards must Be measurable and accurately reflect the managers area of influence, and the plan must be limited to those managers who can directly influence company profits. Few companies have the in-house expertise and Professional assistance is a must in most cases. Properly designed, an incentive plan could boost productivity. Money is a motivator when managers are fairly and amply rewarded in direct proportion to their results. There should be a periodic review of management incentive plan to see whether it works successfully or not. Failure to achieve its goals and objectives, it becomes incumbent on the part of top management to look into the matter with a view to instituting needed remedial measures.

Within recent years, large and small businesses alike, are using differed benefit payments.
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To attract and hold key executives and managers. To provide them with sheltered investments. To ensure financial security

Deferred plans were originally intended as a device for retirement planning, and this is still the basic purpose of qualified plans. However, in the case of unqualified plans, the primary purpose is one of tax avoidance for both current income and estate taxes. Therefore, over the years, the unqualified plan has become more and more used as a tax planning tool for executives and business managers in that country.
Typically, an executive or business managers enjoying high salaries possible, would defer as much current income as necessary to: Lower the present standard of living Build a retirement fund by proving (including growth) 50 to 90 percent of salary at the time of retirement. To achieve the goals, the deferred compensation plan may be either qualified or unqualified, and in the case of unqualified plans, funded or unfounded.

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