Incentive Compensation and Employee Ownership

In today's competitive business environment, more and more companies use incentive compensation to "communicate goals in the most effective way possible--by putting a bounty on them," as Jack Stack writes in chapter 3 of this book. However, such programs often fail to improve performance if the company does not design them properly, customize them for the company's particular situation, and effectively communicate them to employees. This book explains how to avoid these pitfalls. Using a variety of real-life examples, it describes how companies can use incentive plans, ranging from cash bonuses to stock options and other equity incentives, to motivate employees to achieve higher productivity while rewarding them for their efforts. The first part of the book is a series of essays on incentives and how to use them, while the second part provides case studies from companies that have put these plans into practice. This book relates incentive plans to employee ownership (i.e., ownership of company stock by employees) in two ways. First, the incentive plan itself may use stock, in which case it frequently takes the form of a stock plan, such as a restricted stock plan, discussed in chapter 5. Second, the short-term rewards of incentive compensation can fill a gap left by a longer-term benefit such as an employee stock ownership plan (ESOP), as chapter 2 explains. The sixth edition has been revised to clarify the technical material and bring it up to date, to fine-tune the chapter on cash incentives, and to add a new case study and remove an old one.

Barbara Baksa is the business manager of industry relations and education at the Business Solutions Group of E*TRADE Financial. She is a Certified Equity Professional (CEP) and frequently speaks on equity compensation-related topics at NCEO, NASPP, GEO, and Business Solutions Group events. The Business Solutions Group provides full-service stock plan management, powerful software for plan administration, and tools to help employees plan their financial future in an integrated package.

Paul Davis is the president of The Scanlon Leadership Network, a nonprofit association that promotes the Scanlon principles, provides networking opportunities for members, serves as a clearinghouse of Scanlon information, and supplies Scanlon related products and services.

Bryan Girard was formerly the director of communications at the NCEO.

Cathy Ivancic is a consultant for Principal Financial Group. Since 1985, she has helped more than 100 ESOP companies enhance ESOP communications and develop an ownership culture. She is active in national organizations that promote shared ownership.

Neil N. Koenig owns Leadership R&D, a management consulting firm specializing in leadership development, family businesses, and ESOP companies.

Jerry McAdams is national practice leader, Reward and Recognition Systems, for Watson Wyatt Worldwide.

Bill Nicholson is a CPA active in the ESOP community.

Darryl Orr, chief operations officer at Smith & Company, is a registered professional engineer. He has owned and operated consulting engineering firms since 1971.

Corey Rosen is the executive director of the National Center for Employee Ownership (NCEO). He received his Ph.D. from Cornell University in political science in 1973, taught government at Ripon College until 1976, and then served as a Senate staff member until 1981, when he cofounded the NCEO.

William H. Scott is a radiation physicist and assistant vice president at Science Applications International Corporation (SAIC). In addition to conducting radiation shielding research, Scott serves as SAIC’s Participation Advocate to improve employee involvement and the understanding of employee ownership.

Jack Stack is the president and CEO of SRC Holdings Corporation.

Matt Ward is a senior vice president of technology compensation consulting at the Radford Surveys unit of Aon Consulting. He has more than 20 years of consulting experience, with a focus on strategic annual and long-term incentive plan design for both publicly traded and private companies. Before joining Aon Consulting, Matt was founder/CEO of WestWard Pay Strategies, Inc. in San Francisco. Prior to founding WestWard, he held senior positions with Watson Wyatt and Frederic W. Cook & Co., Inc. Matt is an attorney and CPA.

Fred E. Whittlesey is an Aon Consulting vice president. He has an extensive compensation consulting background and corporate compensation experience. Before joining Aon Consulting, he held corporate compensation positions at Broadcom and Amazon.com.