Management incentives

The company s stock price was cyclical, but it was always lower than management thought it should be. All management personnel had set price stock options and would benefit from increase in the stock price. 

The company had no assets, except inventory (all facilities were leased), so the investment community needed to see sustained profit performance for all four quarters of a year. Management saw a successful cost cutting and productivity improvement campaign as a way to achieve this. 

Cost cutting and productivity improvement goals were included in key management personnel s bonus plan, which represented a minimum of 25% additional annual income if achieved. 

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When left-clicking within the Other Variable Costs section, the General Expenses dialog box appears, which permits the specification of percentages of product sales charged for selling/transfer expenses, direct research, allocated research, administrative expenses, and management incentives compensation. The defaults shown are those in the cost sheet of Table 17.1 and discussed in Section 17.2. 

Selling / Transfer Expenses 3.00% of Sales Direct Research 4.80% of Sales Allocated Research 0.50% of Sales Administrative Expense 2.00% of Sales Management Incentive Compensation 1.25% of Sales... 

The objective of any exploration venture is to find new volumes of hydrocarbons at a low cost and in a short period of time. Exploration budgets are in direct competition with acquisition opportunities. If a company spends more money finding oil than it would have had to spend buying the equivalent amount in the market place there is little Incentive to continue exploration. Conversely, a company which manages to find new reserves at low cost has a significant competitive edge since it can afford more exploration, find and develop reservoirs more profitably, and can target and develop smaller prospects. 

At point A, despite full management commitment to safety performance, with low employee commitment to safety, the number of accidents remains high employees only follow procedures laid out because they feel they have to. At the other extreme, point B, when employee commitment is high, the number of accidents reduces dramatically employees feel responsible for their own safety as well as that of their colleagues. Employee commitment to safety is an attitude of mind rather than a taught discipline, and can be enhanced by training and (less effectively) incentive schemes. 

Lump Sum contract contractor manages and executes specified work to an agreed delivery date for a fixed price. Penalties may be due for late completion of the work, and this provides an incentive for timely completion. Payment may be staged when agreed milestones are reached. 

The adoption of the Taylor system in the late nineteenth century changed the lines of responsibihty for product quahty (4). This management philosophy was based on using incentives, such as pay based on output, to motivate worker productivity. As the workforce became better educated and labor unions gained strength, it became difficult to motivate workers doing simple, repetitive tasks (5). 

The same money invested in a project with a (DCFRR) of 10 percent would, by Eq. (9-108), obtain an entrepreneurial return i = 8.37 percent on the whole investment, i.e., 8.37/ 100. Investment of the entrepreneur s own money would only achieve an aftertax return of (0.1)(1 — 0.40) = 6 percent on 50, or 3/ 100 of total investment. The incentive to the entrepreneur to manage the projeci thus corresponds to a tax-free income of 5.37/ 100 of total investment. In practice, money is borrowed from more than one source at different interest rates and at different tax liabihties. The effective cost of capital in such cases can be obtained by an extension of the above reasoning and is treated in detail by A. J. Merrett and A. Sykes Capital Budgeting and Company Finance, Longmans, London, 1966, pp. 30 8). 

Contract documents should be reviewed. The HASP should reflect and possibly reference contractual agreements. Contract documents can contain much information pertinent to site safety. For example, many contracts contain monetary incentives for completion of site work accident free. If management wishes to share some of this monetary incentive with site workers, the HASP is an excellent vehicle for communicating safety incentive programs. 

As a practical matter, support from top management also creates strong incentives at the implementation level. If PSM is known to be a priority for the boss, it is much more likely to attract active participation within the company. By contrast, initiatives that employees see as "flavor of the month" win (and usually deserve) little continuing employee support. 

Abhay K. Bhushan, Economic Incentives for Total Quality Environmental Management, IEEE, 1993. 

Informally review and consider major initiatives or campaigns (for example, PSM and Responsible Care , or other quality management initiatives) that have succeeded in your company—along with those that have failed. What made them work Incentives to participation Relevance to job or quality of life Other factors And what about the failures Lack of follow-through Weak endorsement Poor idea in the first place ... 

Incentive measures are generally used to draw attention to PSM and ESH performance issues that are, to some extent, controlled by worker behavior or management attention. These measures are frequently used for distributing incentive awards or at-risk pay when particular targets are met, for example 1 million hours without an injury or a target number of changes processed correctly. Whether your company uses incentive measures and awards is a matter of corporate practice. 

Businesses, operating in a market economy, have little incentive to implement demand management strategics on their own. They pay for the costs of shipment delays associated with moving goods and services to the marketplace (these costs are incorporated into the selling price of the goods and semces). 

Accepted solutions are usually covered by specifications and codes of practice. These documents are important for three reasons they form part of the contract they define methods of design and fabrication proven by experience and they act as a means of communication between the parties involved in design, fabrication, construction and inspection. There is a strong incentive to use standard solutions as unexpected problems or misunderstandings are less likely to occur than if a novel solution is attempted such problems lead to the cost of rectification, but the delay that they cause is usually more importantConsequently project managers are often reluctant to be the first to use a novel solution. 

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