Ibm Tightens Reins on Manager Bonuses

By Deutsch, Claudia H. | THE JOURNAL RECORD, May 1, 1991 | Go to article overview

Ibm Tightens Reins on Manager Bonuses


Deutsch, Claudia H., THE JOURNAL RECORD


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By Claudia H. Deutsch N.Y. Times Nws Service Like most companies, the International Business Machines Corp. used to pay bonuses only when its business units hit some predesignated growth goal. How competitors were doing didn't matter at ll.

That's not true anymore. Last year, IBM built into the bonus formula sales growth relative to its industry. And this year, it is initiating a ``best of breed'' program, in which outside contractors are asking IBM customers which computer companies provide the highest degree of customer satisfaction.

``Substantial parts of some executives' bonuses will depend on whether their customers rate IBM as the best,'' said Donald H. Edman, director of personnel progams.

More and more, companies are adding a ``look-around'' dimension - a check of how their results stack up in relation to those of other companies - to the traditional ``look forward, look back'' approach that based incentive pay solely on whether results had improved from the year before.

Many are loath to talk about it, lest publicity attract shareholder scrutiny of all their compensation plans. But compensation consultants say their clients increasingly balk at rewarding executives for attaining 10 percent growth in a market growing at a 25 percent clip or at penalizing them for declining profits when their competitors are losing money.

``There's no question that more companies are doing comparative analysis than five years ago,'' said Diane D. Posnak, a partner in Pearl Meyer & Partners Inc.

The volatile economy, combined with intensifying competition, remains the primary reason for the upsurge. But Steven Bryson, a vice president of the Handy HRM Ckrp., points to another factor: the increasing availability of data about competitors beyond what can be found in a 10K.

``Market research firms have a lot of data about how customers view competitors, and compensation people are recognizing it can be of use to them as well as to marketing,'' he said.

Comparative pay plans are still most prevalent in industries where competitive data was always readily accessible. Several airlines have long built published statistics on on-time arrivals into bonus plans.

Electric utilities pay executives bonuses if they can attain costs-per-kilowatthour that are below the industry average. Investment firms reward executives who outperform the market.

But now comparative pay plans are showing up in companies that have been whipsawed by economic or political fluctuations. One large oil and gas company now pays part of its executive bonuses on the basis of growth in stock price and dividends vis-a-vis those of direct competitors. …

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