1. Incentive Compensation
MANA 5322
Dr. Jeanne Michalski 1

2. Sales Incentive

3. 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, % 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

4. 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.

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

6. Salary/Incentive Ratio (Mix)

7. 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

8. 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 % rate
Adjusted Rate Varies Based on Characteristic Other Than Volume or Quota
Product A % rate
Product B % rate

9. 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

10. 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

11. CASE - Strategy

12. Executive Compensation

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

14. 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

15. 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

16. 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 Our named executive officers are our Chief Executive Officer, Chief Financial Officer and our three other most highly compensated executive officers.

17. 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