Incentive Compensation MANA 5322 Dr. Jeanne Michalski michalski@uta.edu 1

Sales Incentive

Guiding Principles for Sales Incentive Plans Aligned with company’s business strategy Designed to specific jobs Capable of differentiating various levels of performance Limited in the number of performance measures and and capability is in place to track and report results Realistic goals (i.e. set so at least 90% achieves threshold, 60-70 % achieves target/quota and 10-15 % exceed) Administered in timely and cost-efficient manner (not a lot of manual intervention Supported by all levels of management

Sales Incentives – Terms Target Cash Compensation (TCC): Total cash compensation (including base salary and incentive compensation) available for achieving expected results Salary/Incentive Mix: Relationship between base salary and target incentive amounts usually expressed as percentages (e.g. 80/20 mix) Leverage: Amount of increased or upside incentive opportunity that outstanding performers might earn.

Leverage Mix and leverage are strongly linked More pay at risk the greater the upside opportunity

Salary/Incentive Ratio (Mix)

Factors that Impact Mix Sales Process Role in the Process Type of Product or Service MORE PAY AT RISK Transactional Product Focused Frequent Sales Key impact on decision to buy Limited expertise required for sales success Commodity Sold on price LESS PAY AT RISK Consultative Relationship-focused Few, large sales Long sales cycle Team member Provides leads or fulfillment only Key expertise in product customer, or segments Specialty or custom Sold on value

Types of Commissions TYPE EXAMPLES Flat Commission: Rate X Volume 3% X ($s) Individual Commission Rate (ICR): Individual’s Incentive Target Divided by Individual’s Quota Rep 1: $100,000 incentive target/$1,000,000 quota = 10% rate applied to sales volume Rep 2: : $100,000 incentive target/$1,500,000 quota = 6.7% rate applied to sales volume Ramped Rate Adjusted on Achievement of Sales Volume or Quota 0% - 100% of quota 5% rate achieved > 100% of quota 7.5% rate Adjusted Rate Varies Based on Characteristic Other Than Volume or Quota Product A 5% rate Product B 7.5% rate

Performance Standards CRITICAL TASK – establishing expected performance standard, usually set at least 3 achievement levels Threshold: Minimum level of performance that must be achieved before an incentive can be paid Target: Expected level of sales results or individual performance (earn target incentive opportunity) Excellence: Point at which the defined leverage or upside is earned

Plan Measures and Performance Standards Factors to consider Job – should reflect job accountabilities and salesperson can control or influence outcomes Business Drivers – consistent with the financial drivers of the company’s business plan Focus – to ensure focus on appropriate measures it is best to use limited number of measures System capabilities – if it cannot be tracked and measured today it does not belong in the sales compensation plan

CASE - Strategy

Executive Compensation

Executive Compensation Base Salary Short Term Incentives ( Cash) Long Term Incentive (Equity – Restricted Stock, Stock Options) Retirement Plans Perquisites

Equity Awards Stock Options Key terms Valuation method since usually no value on grant date Key terms Grant date Vesting Period Expiration Date/Exercise period Under water options In-the-money options Vested and Exercisable Performance stock

Equity Awards Restricted Stock Value on day of grant but restricted Restrictions can be performance and/or time based Requirement to hold stock – usually a multiple of salary – 1- 5 times salary

Proxy Statements (Kimberly Clark) EXECUTIVE COMPENSATION   Compensation Discussion and Analysis This Compensation Discussion and Analysis is intended to provide investors with an understanding of our compensation policies and decisions regarding our named executive officers for 2008. Our named executive officers are our Chief Executive Officer, Chief Financial Officer and our three other most highly compensated executive officers.

Name and   Stock Option Incentive Plan Compensation All Other Principal Position Year Salary($) Awards($) Compensation($) Earnings($) Total($) Thomas J. Falk 2008 1,224,996 2,208,418 1,479,661 943,247 1,276,613 103,896 7,236,831 Chairman of the 2007 1,212,497 4,744,250 1,343,165 2,498,992 1,195,872 143,406 11,138,182 Board and Chief 2006 1,175,000 5,695,857 1,477,498 1,367,700 1,057,314 118,565 10,891,934 Executive Officer Mark A. Buthman 645,000 492,700 323,032 370,260 252,410 114,775 2,198,177 Senior Vice President 578,756 963,722 288,786 734,400 221,778 88,087 2,875,529 and Chief Financial 507,517 1,139,698 318,604 405,425 192,137 78,881 2,642,262 Officer Robert E. Abernathy 606,249 788,743 494,612 349,745 433,139 100,337 2,772,825 Group President — 545,009 1,212,724 348,264 822,794 529,655 11,250 3,469,696 North Atlantic 521,285 1,290,421 349,006 437,394 404,905 14,608 3,017,619 Consumer Products