Read The Ultimate Incentive Plan on page 451. Why is it important that a company’s incentive plan is in alignment with its business plan? What considerations are important when developing an incentive plan, as discussed in this case? What advantages do Fastener Industry employees have over employees of other corporations? What potential disadvantages?
A company’s incentive plan must match its business plan. The incentive plan is designed to keep certain employees within the company so that those people do not go work for competitors and so that the company can continue to benefit from their human capital and specific skills. If the company does not give incentives to the right people, the business plan will suffer because the company can end up with a workforce that has skills that do not match with what the company is trying to accomplish. A company must consider its long-term goals when designing incentive plans to ensure that the incentives it offers do not eat excessively into company profits, and to make sure that it has the correct human capital to accomplish its long-term goals. Fastener Industry employees know that their factory won’t be outsourced, because they are in control. They control the factory democratically and pick their bosses and Board of Directors, so they know they can trust them. Employees of other companies are just pawns in their bosses’ hands, while these employees control the game. Employees of other companies may end up making more money because since bosses are not accountable to their employees, they can make hard decisions that may make the company more profitable, which sometimes benefits employees.