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Duckworth Industries - Incentive Compensation Programs Case

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Introduction

Duckworth Industries - Incentive Compensation Programs Case In the current case, Team A examines Duckworth Industries, Inc. - an industrial manufacturer - in order to evaluate its current and proposed incentive compensation programs. Analysis and recommendations follow. Duckworth Industries, Inc., has several incentive compensation programs for different levels of employees, each designed to address different problems or productivity issues. For plant-level employees, Duckworth has an attendance bonus program to reduce tardiness. For employees up to the shift supervisory level, Duckworth has a quality incentive plan to reward those who ensure high quality in their products and services. Duckworth also has a profit-sharing plan for all employees. Profit sharing rewards employees for increasing the company's profitability. Duckworth offers individual incentive plans for all sales and supervisory personnel to improve accuracy, turnaround time, and sales growth. The annual incentive compensation plan is reserved for senior managers, some of which also participate in a long-term program. ...read more.

Middle

Duckworth would benefit from this plan in two major ways. First, this plan is self-maintaining, given the previously mentioned performance adjustment. Additionally, this bonus structure would be uniform for all business units, thus allowing managers to transfer between departments without losing earned benefits under EVA. Kunkel (2005) identifies several factors that contribute to a company's decision regarding long-term incentives: maturity, growth potential, industry, and market conditions. FASB standards, though strict, will probably cause companies to look at other forms of long-term compensation, such as restricted stock and performance plans. Such programs are usually less risky than stock options. Savage (2004) views the rising value of the equity markets of the 1990s as helping "fuel the widespread use of employee stock options." These plans were seen as a way to align employees with investors, provide true incentive compensation, and help provide cash through the market sales of ESOs. ...read more.

Conclusion

A bonus target, a baseline EVA, a base unit value, and a bonus sensitivity factor are calculated for each business unit. This plan does not include stock options. In contrast, the executive compensation plan of Industrial Distribution Group (IDG), a Duckworth competitor, rewards management for increasing operating income and return on investment, increasing shareholder value, promoting growth and the efficient use of resources, and achieving specific individual goals. Performance targets are set each year based on operating objectives. Participants can elect to receive cash or company shares. Duckworth should consider adopting a plan that includes stocks as an option to link the personal interests of employees to those of shareholders. The plan calculations should be simplified and linked to existing information. The performance targets should be reevaluated each year and set to company, business unit, or individual objectives. A plan that allows management to become "owners" will maximize shareholder wealth and minimize internal conflict. ...read more.

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