Provigo

In: Business and Management

Submitted By AndreaWe
Words 3233
Pages 13
1. Features that we like about the new incentive plan

In general, there are a lot of positive features that the new incentive plan of Provigo Inc. provides. First of all, the incentive plan consists of two extrinsic-reward components – a cash-based reward, as well as an equity-based reward. This motivates managers to not only perform well for quick cash, but also to increase the equity value through consistent growth and good performance of the company. Further, the incentive plan has two terms; the annual allocation of cash and the three-year performance-based equity plan. This way, the managers know that their bonus is not just depending on annual evaluations, but also on a three-year cycle. This can reduce the incentive for earnings management. Overall, it can be said that the incentive plan aligns the interests of the manager with those of the company. Whenever desired performances of the company, the targets, are achieved, managers will receive a bonus. The managers will try to achieve the targets, as they otherwise forgo the bonus, and thus act in the interest of the company. Although the overall goals are set by the holding, the operating managers have the authority to assign resources, which leaves room for the creation of budgetary slack. The positive sides of budgetary slack are that it can reduce the stress on management to reach goals, leaves room for organizational learning and left-over time as well as resources can be used for innovation and creativity (Merchant and Van der Stede, 2011) Furthermore, there are different levels within the incentive plan, which represent the different levels of accountability for the different management layers. President, Vice-President and Division Managers all receive their bonus based on the authority and responsibility they have within the company, and will be more punished or rewarded based on their performance…...

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