1
Presentation on
Management Compensation
Falguni Sagar
2
Flow of presentation
• Introduction
• Characteristics of incentive compensation plan
• Short term and long incentives pl...
3
Introduction
• Compensation is the total amount of the monetary and
non-monetary pay provided to an employee by an
emplo...
4
Compensation is based on:
• Market research about the worth of similar jobs in the
marketplace,
• Employee contributions...
5
Characteristics of incentive
compensation plan
• Three components:-
1.Salary
2.Benefits
3.incentives
• Components are in...
6
Short term and long incentives
plan
• Short term
The total bonus pool
Carryovers
Differed Compensation
• Long term
Stock...
7
Incentives for corporate officers
• The total is how divide among the corptrate officers.
• Each Corporate officer expec...
8
Incentive for Boniness Unit
Managers
• Incentives Compensation design for BUM
a) Types of incentives
b) Size of bonus Re...
9
a) Types of incentives
Financial Reward
 Salary increase
 Bonuses
 Benefits
 Perquisites
Non-Financial Reward
 Prom...
10
b) Size of Bonus Relative to salary
 Upper cutoffs
 Lower cutoffs
c) Bonus based on
 Business unit profits
 Company...
11
d) Performance Criteria
Financial criteria
• Contribution margin
• Direct business unit profit
• Controllable business...
12
Non financial criteria
• Sales growth
• Market share
• Customer satisfaction
• Quality
• New product development
• Per...
13
e) Bonus Determination Approach
 Formula based
 Subjective
 Combination of the two
f) Form of Bonus payment
 Cash
...
14
Agency Theory
• A theory explaining the relationship between principals,
such as a shareholders, and agents, such as a
...
15
Monitoring
Oowners seek maximum effort from employees at minimal
cost while employees seek to minimise effort and
maxim...
16
• Principals can monitor consequences of (only partially
obseved) agent behaviour
• outcome based contracts; compensati...
17
Responsibilities of the board of
directors;
• Establish policies and objectives for the firm
• Elect, monitor, evaluate...
18
Incentive contracting
• A principle may attempt to limit divergent preference by
establishing appropriate incentives co...
19
Agency Problem in Indian
Business- Satyam & Maytas
• My Biz View Agency Problem in Indian Busine
Maytas.mht
20
Bibliography
• http://humanresources.about.com/od/glossaryc/g/compensatio
13th march 2012
• http://www.irs.gov/newsroom...
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Presentation on management compensation by falguni cm(sagar)

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Falguni sagar

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Presentation on management compensation by falguni cm(sagar)

  1. 1. 1 Presentation on Management Compensation Falguni Sagar
  2. 2. 2 Flow of presentation • Introduction • Characteristics of incentive compensation plan • Short term and long incentives plan • Compensation for Corporate officers • Compensation for SUB officers • Agency Theory
  3. 3. 3 Introduction • Compensation is the total amount of the monetary and non-monetary pay provided to an employee by an employer in return for work performed as required. • Compensation also includes payments such as bonuses, profit sharing, overtime pay, recognition rewards and checks, and sales commission. • Compensation can also include non-monetary perks such as a company-paid car, stock options in certain instances, company-paid housing, and other non- monetary, but taxable, income items.
  4. 4. 4 Compensation is based on: • Market research about the worth of similar jobs in the marketplace, • Employee contributions and accomplishments, • The availability of employees with like skills in the marketplace, • The desire of the employer to attract and retain a particular employee for the value they are perceived to add to the employment relationship, and • The profitability of the company or the funds available in a non-profit or public sector setting, and thus, the ability of an employer to pay market-rate compensation.
  5. 5. 5 Characteristics of incentive compensation plan • Three components:- 1.Salary 2.Benefits 3.incentives • Components are independent • Approved by share holder • Short term and long term
  6. 6. 6 Short term and long incentives plan • Short term The total bonus pool Carryovers Differed Compensation • Long term Stock option Phantom Shares Stock Appreciation Plan Performance Share Performance Unit
  7. 7. 7 Incentives for corporate officers • The total is how divide among the corptrate officers. • Each Corporate officer expect the chief executive officer is responsible in part for the company’s overall performance. • These C.O are motivated by bonus for good performance. • How the performance measured • Issue related TOP CEO Salary
  8. 8. 8 Incentive for Boniness Unit Managers • Incentives Compensation design for BUM a) Types of incentives b) Size of bonus Relative to salary c) Performance Criteria d) Bonus Determination Approach e) Form of bonus Payment
  9. 9. 9 a) Types of incentives Financial Reward  Salary increase  Bonuses  Benefits  Perquisites Non-Financial Reward  Promotion possible  Increase responsibilities  Increase autonomy  Better geographical location  Recognition
  10. 10. 10 b) Size of Bonus Relative to salary  Upper cutoffs  Lower cutoffs c) Bonus based on  Business unit profits  Company profits  Combination of two
  11. 11. 11 d) Performance Criteria Financial criteria • Contribution margin • Direct business unit profit • Controllable business unit profit • Income before Taxes • Net income • Return on investment • Economic value added Time period • Annual financial performance • Multiyear financial performance
  12. 12. 12 Non financial criteria • Sales growth • Market share • Customer satisfaction • Quality • New product development • Personnel development • Public responsibility Relative Weights Assigned to Financial and Non financial
  13. 13. 13 e) Bonus Determination Approach  Formula based  Subjective  Combination of the two f) Form of Bonus payment  Cash  Stock  Stock option  Phantom shares  performance
  14. 14. 14 Agency Theory • A theory explaining the relationship between principals, such as a shareholders, and agents, such as a company's executives. • Divergent objective of principles and agents • Non absorbability of Agent's actions • Control Mechanisms:- • Agency theory states that two major ways of dealing with the problems of divergent objective and information asymmetry:- Monitoring incentives
  15. 15. 15 Monitoring Oowners seek maximum effort from employees at minimal cost while employees seek to minimise effort and maximise remuneration (i.e. pay and benefits) Monitoring mechanisms; A) Contracts • Principals can monitor agents by collecting information about their behaviour (decisions and actions) • behavioural contracts; specify the activities Agent should engage in • e.g. institutional investors monitor the decisions of of senior managers, board of directors monitor top management...
  16. 16. 16 • Principals can monitor consequences of (only partially obseved) agent behaviour • outcome based contracts; compensation, rewards, piece rate production, commissions.. • When tasks are not highly programmable monitoring performance (output) is more efficient • Performance monitoring is problematic in relation to teams, free rider problems. B) Board of directors • board is charged with fiduciary responsibility (i.e. legal trustee) of safeguarding the stockholder’s investment Iinside and outside board members. • The outside board membersprovide objectivity as the board ratifies and monitors the decisions of managers.
  17. 17. 17 Responsibilities of the board of directors; • Establish policies and objectives for the firm • Elect, monitor, evaluate and compensate top manager • Monitor, approve the financial condition of the firm • Ensure that regulations are enforced
  18. 18. 18 Incentive contracting • A principle may attempt to limit divergent preference by establishing appropriate incentives contracts. • The more agent rewards depends upon on a performance measure by principal • The agent's reward depends on a performance of her/his • Contract given to the agent motivates the agent to work in the principle’s interest • The contract is consider as goal congruence
  19. 19. 19 Agency Problem in Indian Business- Satyam & Maytas • My Biz View Agency Problem in Indian Busine Maytas.mht
  20. 20. 20 Bibliography • http://humanresources.about.com/od/glossaryc/g/compensatio 13th march 2012 • http://www.irs.gov/newsroom/article/0,,id=200293,00.html 13th march 2012 • http://www.investopedia.com/terms/a/agencytheory.asp 14th march 2012 • Book:- Management control system 10th ed Anthony and Govindrajan • mhtml:file://C:Documents and SettingsctiDesktopMy Biz View Agency Problem in Indian Business- Satyam & Maytas.mht
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