Question

You are a member of the senior executive group at your company. The company has a reputation of compensating its executives at a very high level. In fact your own compensation appears to be at least 50% above that of your peers in like companies. Due to pressure from the founder who recently sold a significant interest in the company but has retained a controlling interest in the company and now lives in another state the company is considering developing an incentive system for all employees who other than the executives are paid significantly below the levels of peer companies. No incentive pay has been used in the company up until now. You have been able to achieve this pay structure due to the limited other job opportunities for the non-executive employees in the immediate area. Employees below the executive level are not consulted when even small decisions are made that impact how they do their work, Task control is applied universally to monitor operating performance on a day-to-day basis. In addition to concentrating compensation at the top of the organization chart, decisions are also made at the highest levels and no planning or financial information is shared with employees outside this executive group. You recently received input from a group of private equity investors who are very vocal and have purchased a 40% interest in the company. You feel it is likely these investors will eventually acquire all the company stock so they cannot be ignored. They feel that overall employee pay, the salary and benefits line on the income statement, in total is excessive and they are demanding this issue be addressed. You have been considering stock options, profit sharing and cash bonuses as alternatives for an employee incentive system.   

Required:

1) Given these facts and the culture in your company (control methods that have been used, disparities in information sharing, decision-making and incomes) and the apparent competing /conflicting pressure from the new investors and the founder discuss these three alternatives for an employee incentive system.   

Answer 1

The are alternatives for the Profit Sharing the stock options and cash bonuse. De stock options: The following option is employed in the early Stage companies in a fast growing market! - in this option it gives employees the right to buy the company shares at a fixed rate con price and that right can be exercised during specified time. a And there is no obligation to exercise the option and no financial risk and no conse quent benefits unless the very option is exercised. → The stock option is an additional advantag, like perquisite, but it comes with tax diability and uncertainty till the time option is exercised. Certainly the younger employees will Prefer the above plan. Cash bonus: - This is cash payment which is given to the employees as Bonus for their Performance in Work.

V This is paid either individually or to all the employees. → It is subjected to tax liability for employees. - Generally the older employees will Prefer this plan. Les .