Duckworth Industries

Inc.
Incentive compensation programs

• The firm has several programs for different tiers of empleyement.

• It has been developed to address different problems or productivity

issues.
Types of compensation plans
• Plant-level employees
• Bonuses for punctual employees ($0.60/hour)
• Supervisory level
• Gifts for greater involvement ($100/month)
• All employees
• Employees who increase the company’s earnings get extra prizes (15% of
profits)
• Sales and supervisory personnel
• 10 to 40% of their base pay, for increased sales and accuracy of work
 Profit sharing plan
Advantages Disadvantages

• Create groups of employees with • The earnings of each employee

a common goal ncrease or decrease together, not
individual
• Focus employees on profitability • Only profitability is a goal
• The cost of implementing the • These plan for smaller companies
plan changing with company’s cause huge changes in employees’
revenue changes earnings , what causes the difficulties
to manage their finances
• Enhances commitment to
organizational goals • The FLSA requires employers to
recalculate each worker's "regular
rate" of pay. To overcome this
limitation, employers may restrict this
type of compensation to exempt
January 05, 2017 from http://www.hr-guide.com/data/G444.htm employees.
Senior management
• Duckworth implemented a program to reward managers who achieve:
• Certain performance goals, in areas such as:
• Cash flow
• Sales growth of proprietary products
• Inventory turns
• Accounts receivable
• Gross margins
• Special individual projects
Economic Value Added (EVA)

Advantages Disadvantages

• Automatically adjusts the • Complex and complicated

baseline to calculate next year's calculations
bonus based on the • bonus based on previous year
performance of previous year performance - How to evaluate
new employees?
EVA Components
• 

• NOPAT - Net operating profit after tax

• T - Tax
• WACC - Weight average cost of capital
• IC - Invested capital
Mechanism for Calculating Incentive
Compensation
1. Bonus target established - until 37% of pay base. Bonus units
assigned to each manager - $1.00
2. Baseline EVA level was established - system was made “self-
adjusting”
3. Base unit value established - how much the target bonus could be
earned - if EVA hits exactly baseline - $1.00. If value dropped (based
on previous year) then - $0.80
4. Bonus sensitivity factor
Hospitality Equipment and Hotel
Telecom

• The EVA system is based on capital employed to create value. This

may differ from a service company to a manufacturer company as a
service company may be focused on return of sales and the
manufacturer on the return of assets
Conclusion
EVA despite being a self-adjusted system is quite complex in order to be
implemented in a small company. It is a costly and time consuming
process that would require considerable data analysis as well as some
reorienting in terms of going forward with senior management. What is
more, it would require extensive training and communication effort.
Despite some may argue that it is an efficient and practical system once
installed that adjust short and long term incentives, it do not solve
business problems as it is only a tool of evaluating the company and its
value and consequently the incentives paid.