CASE 11.2 : JAPAN'S CANON USES INCENTIVE COMPENSATION ( JAPAN) 1. Do you perceive any constraints on...

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General Management

CASE 11.2 : JAPAN'S CANON USES INCENTIVE COMPENSATION (JAPAN)
1. Do you perceive any constraints on the use of different formsof compensation, such as bonuses or incentive compensation schemes? What would these constraints be and why ?
2. What would you have predicted for the acceptance or rejectionof the incentive compensation scheme at Canon in Japan ?
3. From an organizational strategic perspective, does it makesense to implement a centralized and standardized compensationsystem globally ?
source : Canon loves to compete, July 22, 2002, s5

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1 Do you perceive any constraints on the use of different forms of compensation such as bonuses or incentive compensation schemes What would these constraints be and why Incentive compensation is a type of compensation based on the performance of an entity Often incentive compensation plans are designed to attract and retain key employees identify with shareholders and align interests of employees and the company For instance in the Unites States many corporations pay their executives and employees incentive bonuses based on multiple performance measures Executives might receive the following forms of compensation a base salary annual bonus plan stock options and additional compensation eg longterm incentive plan retirement plan restricted stock Compensation plans are often based on net income and stock prices of the company or some other performance measure Performance can be assessed using various measurements both internal and external Internal measurements might include financial indicators eg stock price earnings per share net income total shareholder return return on equity revenue growth and nonfinancial targets eg product quality customer satisfaction building excellent investor base managing risk and reputation Performance can also be evaluated in relation to the performance of a peer group of companies eg earnings per share total shareholder return There is a wide spectrum of incentive compensation arrangements annual cash bonus plans deferred bonus plans stock grants restricted stock grants stock appreciation right plans phantom stock plans etc For instance under the stock appreciate right plan a plan participant has the right to receive the appreciation in stock value In restricted stock grants employees are awarded companys shares subject to a vesting schedule While the concept of incentive compensation isnt very difficult to wrap your head around the actual process can be a lot more challenging to digest Luckily were here to help the plans that are designed for Sales reps can be extremely complicated often including handfuls of metrics and rules that denote the amount of money they are going to make and how they are going to make it If you try to imagine having a team of a hundred or more reps to pay you might suddenly understand why the sales compensation expert at your company is tired and overworked Aside from the tedious aspects of the process mentioned above there are other challenges for the person responsible for handling the sales incentive compensation program at any given company Surprisingly 87 of organizations are still calculating compensation in spreadsheets or with homegrown systems While this may have worked when the company had ten reps it is not a sustainable solution for growth oriented companies and it leaves these firms vulnerable to errors and lack of visibility Both of these issues can have dire financial repercussions which is why having an automated incentive compensation solution is so critical to any business In running a service business it can be challenging to figure out which type of compensation plan provides the most incentive for employees to go the extra mile and take pride and ownership in their work products Trial and error is one way to evaluate which compensation plan works best If selling services to new and current clients is essential you could find the key to your success among a number of incentive compensation plan options Profit Sharing Profit sharing plans typically make employees feel as though their hard work has a direct impact on the companys bottom line by rewarding them with a portion of annual profits when certain milestones or goals are reached You have some options when implementing a profit sharing plan If your workforce is concerned about retirement payments can be deposited directly into taxdeferred retirement accounts If your employees are relatively young making payments directly to each employee may provide more incentive to exceed expectations on every client project Performance Bonuses Offering periodic lumpsum bonuses to individual staff members who achieve certain performance goals also is an effective motivational tool In a firm that provides services the goals you establish for bonus eligibility can be tailored to specific job roles For example for employees who have the opportunity to seek out new clients and increase the service offerings to current clients one option is to tie bonuses to the revenue increase that each employee is responsible for bringing in Stock Options Perhaps your business is fairly new or doesnt have a lot of cash to play with but you still think its important to offer an employee compensation program Offering stock options or a similar equitybased program wont cost anything but it does mean that your own percentage of ownership in the business will decrease The goal in giving employees equity in the business is creating a culture of owners rather than just employees In theory employees who have a stake in the company they work for are motivated to work harder and smarter at their jobs MeritBased Raises Whether offered in addition to or in lieu of other incentive compensation programs meritbased raises can go a long way in retaining employees you recognize as being vital to the operation Rewarding employees who consistently perform above expectations can instill a sense of pride and loyalty in them In general a meritbased raise tends to be more effective when the salary See Answer

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