Superconductor Technologies
1. Financial Analysis
In order to evaluate the incentive system, the analysis of the current situation of STI needs to be put into the first place because there is no fit-for-all incentive system and the one fits the company best can be seen as a optimistic choice.
Based on the brief financial report shown in the case, there are two major facts which seems will be effecting the incentive plan.
1.This company is on its rising stage, whose net sales boosts over 30% averagely each year and shows a high accelerate rate in recent years. As a lot of high-tech companies, its high ROA and ROE had proofed its strong profitability.
2. It suffers a high cost and especially high selling, general & admin expenses, which leads a low gross income and a negative net income. Regardless of the high cost of goods which may caused by the high scrap rate inevitable in this pioneer industry, the SG$A expenses which take over 84.3% of the net sales seems rather a burden to STI. NVIDIA, a leading high-tech producer, spend only 7.9% on SG&A comparing to its total return in 2002. Although there seems no more clues to screen the exact admin expense in the case, simply multiplying the figure of the average compensation paid to the top managers by 30, the figure seems to be over 6 million excluding the securities options, nearly 30% of the net sales and 200% the gross income.
2. Policy Analysis
Now we have a big picture of the company, which is someone on its boost stage to the bright future but on the same time suffers a heave load from its costs and expenses. The mix rewards systems composed of salary, bonus and long-term incentive seems to be a good idea to encourage its employee and no problem to me, but the question here is, what is the best proportion of the salary, short-term incentives and long-term incentives? The current policy put too much money on the fixed salary which has the lowest incentive effect and the highest financial cost. For a mutual industry or firm, it may be
In order to evaluate the incentive system, the analysis of the current situation of STI needs to be put into the first place because there is no fit-for-all incentive system and the one fits the company best can be seen as a optimistic choice.
Based on the brief financial report shown in the case, there are two major facts which seems will be effecting the incentive plan.
1.This company is on its rising stage, whose net sales boosts over 30% averagely each year and shows a high accelerate rate in recent years. As a lot of high-tech companies, its high ROA and ROE had proofed its strong profitability.
2. It suffers a high cost and especially high selling, general & admin expenses, which leads a low gross income and a negative net income. Regardless of the high cost of goods which may caused by the high scrap rate inevitable in this pioneer industry, the SG$A expenses which take over 84.3% of the net sales seems rather a burden to STI. NVIDIA, a leading high-tech producer, spend only 7.9% on SG&A comparing to its total return in 2002. Although there seems no more clues to screen the exact admin expense in the case, simply multiplying the figure of the average compensation paid to the top managers by 30, the figure seems to be over 6 million excluding the securities options, nearly 30% of the net sales and 200% the gross income.
2. Policy Analysis
Now we have a big picture of the company, which is someone on its boost stage to the bright future but on the same time suffers a heave load from its costs and expenses. The mix rewards systems composed of salary, bonus and long-term incentive seems to be a good idea to encourage its employee and no problem to me, but the question here is, what is the best proportion of the salary, short-term incentives and long-term incentives? The current policy put too much money on the fixed salary which has the lowest incentive effect and the highest financial cost. For a mutual industry or firm, it may be