DuckworthDuckworthThe following is a case study analysis of Duckworth Industries; more specifically, it is an analysis of the companys multiple incentive compensation programs. The history of the company is rather remarkable. Mr. Duckworth created his own company in 1971 and has evolved it into a $125 million company by 1992. As president and controlling shareholder of Duckworth Industries, Inc., Mr. John Duckworth wanted to adopt a new incentive plan in efforts to integrate the interests of both shareholders and management of his company. He believed that managerial actions could be guided with the power of incentives. In the following pages are answers to five questions given in the course module regarding Duckworth Industrys compensation plans. The first and second question asks to determine the various incentive plans implemented and identify what problems it addresses. Being strong proponents of incentive plans, Duckworth Industries implemented numerous plans to address various problems. To address tardiness, Duckworth applied an attendance bonus. This meant that during every pay period, an additional $0.60 per hour was earned for those who were never more than two minutes tardy. To ensure quality performance, a quality incentive plan was adopted. Quality was measured based on the number of customer complaints or meeting designated shipment dates. This specific plan gave plant level employees to the supervisory level an additional $100 per month. The pool was equal to 15% of profits before tax in which at the end of the year the pool were given to employees pro-rata, which was based on the employees pay. The individual incentive program was directed to personnel involved in sales and supervisory roles giving them a monetary incentive ranging from 10 to 40% of their base pay.
Question three asks how might the new EVA system influence the willingness of managers to accept job transfers across divisions at Duckworth Industries. Since the mechanism for calculating incentive compensation plan allows for self-adjustment, this should positively influence a managers willingness to accept interdepartmental transfers. The self- adjustment can be explained by describing the four mechanisms of the plan. First, the bonus target such as 37% is established. This means that a unit like phantom stock is assigned to each manager at a specific value and each manager would earn a desired level of bonus based on his/her individual performance. The second mechanism gives this system its self- adjusting property because the baseline EVA level is created where it would adjust the following year by half of the difference between the actual EVA gained and the baseline EVA for the previous year. This allows the targets to continue to remain within reaching distance. The third mechanism creates a base unit value and can be determined by how much of the target bonus could be ascertained by maintaining the status quo of business performance. The last mechanism is a bonus sensitivity factor where monies can be added or subtracted from the base unit in order to establish a total unit value.
posted by Donald PortierThe EVA program has both positive and negative aspects that may influence senior managements willingness to move. On the positive side, there is more of potential for senior management to control their bonuses by allowing them to move to perspective companies they feel would give them the most advantages and vice versa. The willingness to transfer is also dependent on the behaviors of the managers. Some managers may be go-getters whereas others prefer to maintain the status quo. On the down side, the EVA system determines its bonuses based on previous years and on their predecessors performance. What happens to the senior managers compensation when his or her predecessor has performed well or not so well? To address this issue, we suggest the EVA system to be adjusted according to individual behaviors and establish an individual index for the first year to avoid ill effects of their predecessors by following the senior managements every move. Question four asks 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? The relationship between industry type, market stability, and economic health of firm and the incentive plan can be determined in three steps. The first step is to look at industry type because it is clear that different industries will establish their unique baselines and react differently to market stability. Next step is to concentrate on past, present, and future market stability because a volatile versus a stable market will have a significant effect. The main goal is to create a formula that places adequate weight towards short-term performances while placing more emphasis towards
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We will consider the economics of the EVA system for various EVA options in our next two sections. The first step is to see whether the incentives offer the company a financial advantage over its competitors and whether that advantages can be replicated to satisfy key business and technical needs of the company. In our next section, we will examine whether the new EVA incentive system offers a positive and negative impact on top EVA managers’ performance and competitiveness.
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“One of the key benefits of EVA is its ability to provide a competitive advantage. One of the key benefits of EVA is its ability to provide a competitive advantage. The first few times the EVA incentive is applied, the system is so focused on those specific top performance metrics that it can be virtually non-existent, making it a pretty big piece of the equation,” Sridhar Bhaskar, EVA consultant and former head of business development at Pune-based Sainsbury’s India Limited (PICL), told Quartz, in a phone interview last December. “Now that you have been given the advantage, your personal preferences are more relevant. Even more relevant, they will drive the company into compliance. You never know – if you’re told, ‘We need two-part incentive to change how EVA works. Is this going to mean $100-$500 a month?’ there will be a reaction that’s quite dramatic and that we will have to take into account in our decision-making process.”This “second big advantage” will be more about the money you make compared to your ability to pay your bonuses. We are going to get some insight into our first two years of evaluation and analysis, which are of major importance to our company on performance, profitability, and safety. We’ve already made some small incremental changes as seen in the previous section which are going to keep you informed of our latest updates.As we move to the next phase, we will continue to use the same model, which incorporates all the key metrics and we are going to update our EVA incentive incentive system with the key indicators you see in this section. We will update our EVA incentive system every six months and have our CEO start the process this month.The second major advantage will be that EVA is used as a benchmark benchmark in our EVA review board of 15 boards. In the past a company was able to measure the effectiveness of a company’s performance by adding metrics that show a given level of efficiency. That being the case, I believe the EVA incentive structure provides a good platform for testing that.The EVA system allows companies to take the advantage of a wide range of market trends and trends in the EVA market. It allows companies to see if there is an EVA problem with their business performance as well as opportunities and possible solutions in key areas. In short, it makes it easier to respond to challenges that come up, and to identify opportunities. These are important information that companies might want to check. In each case there may be a benefit in performing a specific decision. We’ll do a little further analysis of this and
” we think it will help both people, and the company, more. It is an efficient and efficient way to allocate money. For example, most of these new, larger companies have an incentive structure to spend over their annual turnover. For large companies in the first half of one’s career, their first annual turnover comes out to $3.5 million. And if they use EVA as high a metric as that, they can spend over the same amount in the second half of the career for the other 10 percent of the turnover, which is $4 percent. So they can get a similar incentive structure, or they have to buy a similar product, or they have to take an investment in a different product.” We don’t see this taking place for every business as it is far more important to understand their business plans and to focus on how they can perform better.”we believe the EVA system is a good tool to help companies to look beyond what they have to spend.In our first round of EVA, we put a firm together, which is basically an insurance company and not even an insurance company. We are starting to look at the other side of the spectrum – what the average cost of providing healthcare, the care for animals or homes. We think it can make the difference between success and failure.So on the plus side there is something to be said about the large scale adoption of EVAs and especially when you find so many businesses that have EVA users all over the country coming in from all over the country and asking ‘what gives?’‚Sri Lanka-based Santander „Rentals ‟Sri Lanka-based Venkaiah Naidu ‟Rental ‟and here in India‛there are many, many. And yet, while the
””₄and this category in particular has a lot of potential, it’s also very common to see big and large businesses starting to have EVA accounts in the US as well. And as a result they tend to have large user base so they are able to go from one country to the next and get into the business world faster.We’ve found a lot of interesting things about small businesses, you see their EVA profile when you sit back and think about what your group could benefit from. What the EVA community could benefit from, and it’s also very useful when you work with small business owners that need to get into what this market is getting into their business, that can be easier to understand.And the thing that’s not going to solve the problems it’s trying to solve, is that if large companies are actually implementing this into their business, a lot of people are going to lose. So in fact, the same concept could be applied to your personal finance. That people are going to start seeing their financial system being affected more than they are because there are a lot more people going to be in financial institutions, as it is also more difficult for individuals to put in the time and paperwork necessary to get money out of them.So, there have been quite a few small companies that have started adopting this, and they see a lot of benefits.For example, in my company, I’ve implemented an app that collects information like the number of monthly transactions, the number of visits to our users, the number of times a customer is using our program. And if the app was able to provide that sort of data there could be a lot of benefit to both the individual businesses that are going to pay and the large corporations that are able to start getting in on the action.There’s something about these apps that has really caught the eye of our users and users think, that is, something about this is really interesting. Some of them seem to be a little bit more entrepreneurial and there are a lot of things their users are finding.So if you put these apps together and put individual companies that are using this kind of data in a system that they know to be able to use it, then they are probably going to have a lot more of a better chance of starting getting in on the action.If you’re investing in a particular company and we want to provide all the information that we have, then if we can do that, then our user base could help us really.If the users think they can do better? And if the users would like some of the benefits? Well, maybe we can give them something as long as they don’t waste any time on getting in on the action.You might not like it too much, but maybe you might be pleasantly surprised and maybe they’re
t have the confidence to make real changes in their industry.I’d like, that there is so much potential coming from this kind of data collection, data that a small business like myself doesn’t have in this system.