Duckworth Industries

1172 WordsApr 11, 20065 Pages
The following is a case study analysis of Duckworth Industries, in particular the company?s incentive compensation programs: 1 & 2) What are the different incentive compensation plan options covered in the case and what problems does each plan solve? Mr. Duckworth believed in the power of incentive to guide management action. In order to better align the interest of the management with the shareholders, Mr. Duckworth implemented a variety of new incentive compensation programs: The first incentive program implemented addressed tardiness and attendance. Basically, under this plan an attendance bonus ($0.60/hour) would be awarded to any plant-level employee who was never more than two minutes tardy for work each pay-period. To…show more content…
The EVA is calculated annually for each business unit by using a formula that ?automatically adjusts the baseline for calculating next year?s bonus to reflect the actual performance of the prior year? (Duckworth Case, UOP). Therefore, since employees? bonus is tied directly to this formula, and the formula is based on the performance of the prior year in the old department, it will be difficult to get an accurate bonus figure for the employee?s first year in the new unit. 4.) How should an incentive compensation plan adopted by a firm relate to its industry type, market stability, and to the economic health of the firm? Regardless of the industry, an incentive compensation plan needs to have realistic goals that management can achieve. An incentive compensation plan needs to ensure that the bonuses paid out do not have a negative impact on the economic health of the company. If a bonus is scaled to revenue growth, the bonuses paid out may reduce the overall profitability of a company. Additionally, in unstable markets, it may be impossible to achieve revenue growth goals for a period of time. In an unstable market, a company may not reach their sales revenues, but they may outperform their peer companies. In the case study, Duckworth searched to implement an incentive plan that drives senior management to create wealth. Using a plan like EVA, a company doesn?t need to worry about industry type, market stability, and economic health. Since EVA goals are
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