This blog is about incentive plan
Many problems can be resolved by the financial staff if they are given careful attention and full consideration. Other problems must be brought to senior management's attention. The perceptions of the operating unit management must be dealt with, whether or not the problems can be resolved. The program must be viewed as dealing fairly with the participants if it is to be effective. Accuracy and fairness in calculating the bonuses are largely the responsibility of the financial staff. It is important they identify the problems they can resolve, and those that need operating management's attention.
Pay Bonuses as Soon as Feasible. A bonus can represent a significant portion of a key employee's compensation. This serves the purpose of getting his or her attention, which is a double-edged sword. The focus of attention should be the future, but for many employees the current year is not their chief concern until the previous year's bonus is paid. Delays in paying bonuses may create apprehension and tension which are counterproductive. If bonuses for the prior year cannot be paid within the first month of the new year, some of the positive impact of the bonus program is lost.
Put it in Writing
It is important to commit the bonus program to writing, even if there are no legal requirements to do so. While Federal law does not require shareholder approval of incentive plans, some states and stock exchanges require it. The SEC requires disclosure of how a plan operates for officers and directors. A written program will help avoid misunderstandings and confusion, and will therefore benefit both the participants and administrators.
Intelligence and Sensitivity
An annual bonus program can be an effective motivational tool for accomplishing the goals of a commercial enterprise. The program must be perceived as fair and realistic and must be administered with intelligence and sensitivity. CPAs in industry play an important role in the development and implementation of bonus programs and have a unique opportunity to make valuable contributions to the success of their company. Auditors should become knowledgeable about their clients' bonus programs to get a clearer focus on the impact of the programs on their audit and to enable them to make appropriate worthwhile suggestions for improvement.
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