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08/23/2013

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Ann - It's encouraging to see the increasing trend in this practice. I suspect that companies are using it more to fund multiple awards in a fiscal year, which responds to the effectiveness of frequent feedback coupled with a tangible reinforcement tool.

Back in the early 90's I provided 1st line managers with a pool of money to reward employees for specific accomplishments throughout the year. They had total control over it, could use it as they saw fit, and didn't have to ask anybody's permission in advance. Our CFO at the time argued vehemently against it, convinced that we were going to spend the company out of existence.

Actually, the reverse happened: the biggest problem we had was getting the managers to use the money. They respected the companies money so much that they were reluctant to spend it. Not surprising, perhaps, but it demonstrated what happens when you trust the line managers to act in a responsible fashion

I'm trying to get my head around your note in the post: "that a 1% reduction in your salary increase budget can create the funds necessary for a 2.5% lump sum, considering the present value of the future cash flow."

I would love and appreciate it greatly if you could walk through this in wonkish detail. It's the kind of finance knowledge that we should have... but apparently I lack.

Thanks as always for the post!

John:

Great story - I have run into similar situations where managers, essentially, are trying to save the company money by not recognizing or rewarding employees. Talk about shooting yourself in the foot...

Joe:

Yes - I was going to include a chart on this but ran short of time. Will get it in here....

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