Milap Thaker - Incentive compensation as part of a total compensation strategy

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Jacques Etame, Milap Thaker, and Vincent Zhang. Incentive compensation as part of a total compensation strategy presentation on compensation methods in high tech companies, hedge funds, and other leading edge marketplaces. Includes information on bonus types, negotiation strategies such as anchors and MESOs, and nontraditional incentive strategies.

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  • Conducted by Harvard and Uchicago researchers in high schools in Chicago. teachers were randomly selected to receive a bonus either at the beginning or end of the year; those getting the check up front (the treatment group) had to give it back if student performance didn’t improve as expected. Teachers could earn up to $8,000, depending on the level of improvement. The experimental group was cut a check for the expected amount ($4,000) upfront and had to give back or add to that amount depending on the actual performance at the end of the year.
  • Student scores improve if teachers given incentives but only when it is given upfront. 10 percentile increase in standardized test compared to similar backgrounds; no gain for students when teachers were offered the bonus at the end. In line with previous studies in the United States, we did not find an impact of teacher incentives that are framed as gains (the reward coming at the end of the year),"
  • Milap Thaker - Incentive compensation as part of a total compensation strategy

    1. 1. Jacques Etame, Milap Thaker, and Vincent Zhang Strategic Human Capital Arthur McCombs, Professor The Johns Hopkins University March 6, 2013
    2. 2. 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
    3. 3.  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
    4. 4.    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.
    5. 5.  Sign-On Bonuses   Given to new employees who have  paid to team participants assigned to 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 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 semiannually.  built into employees' overall compensation plan with dollar value buckets from which quarterly project assignments are made.
    6. 6.  Profit Sharing Bonuses   reward employees on the spot for  require a person stay on the job 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 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 Spot Bonuses  Noncash Bonuses  special ceremony, certificate or trophy  sometimes coupled with a token tangible award  can instill pride and improve employee morale if well designed http://www.salary.com/types-of-bonuses/ http://www.klagroup.com/Resources/Articles/IncentiveBonusPlansforYourBestEmployees.php
    7. 7. 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
    8. 8.   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
    9. 9.     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.” http://www.fastcoexist.com/1679223/a-new-company-bonus-plan-reduce-your-footprint-earn-100
    10. 10. http://www.youtube.com/watch?v=u6XAPnuFjJc&feature=youtu.be
    11. 11.  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/
    12. 12. http://techcrunch.com/2012/08/10/harvard-researchers-find-a-creative-way-to-make-incentives-work/
    13. 13.   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/compclass/compensation/total.html>.
    14. 14.  Non-traditional Benefits  Company Car  Cell Phone Service  Office Equipment for Working at Home  Housing  Bereavement  Pension  ESOP
    15. 15. Base Salary 70,000 80,000 90,000 100,000 Bonus 2% 3% 4% 5% Location New York Atlanta Seattle Vacation 10 days 14 days San Francisco 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.
    16. 16.  Anchoring  Seek out MESOs  Setting a first offer initial  Multiple equivalent price  Creating the bargaining range  Zone of (realistic) possible agreement  Finding a BATNA simultaneous outcome  Create a win-win outcome  Move from party positions to party interests
    17. 17. 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-researchersfind-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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