Csi Performance Incentive Package

The base salaries were below the median in the industry, and stock options were offered depending on position in the company and value to the organization. The annual bonuses focused on short term performance. I believe the packages was sufficient considering CSI was a new company. CSI really could not afford to tie up valuable cash in employee salaries, thus the reasoning in offering stock options. Also, the bonuses were based on corporate performance, rather than on individual performance, meaning that the company was earning and the cash used for bonuses would come from actual earning and not be added to the existing operating budget.

Some CSI stock option advantages impact both employee and firm. CSI benefits from stock options because they motivate employees to contribute to continuing success; and if CSI employees are able to contribute to long-term firm success, their stock options will most likely gain value. CSI's stock options also promote retention - this is so because the vesting of CSI stock options occur at 25%/year over a four year period (p. 460). Additionally, stock options do not expire for 10 years - however, if an employee leaves the firm, they expire within 30 days of departure (p. 460). And as a "young company" that is "still in a 'pre-profit' stage of operation" (p. 458), CSI benefits from using stock option incentives because they motivate employee performance without requiring the firm to distribute much needed cash (p. 374).

One CSI stock option disadvantage is that some CSI employee's are unfamiliar with stock options and how to value them (p. 461). This lack of understanding has the potential to reduce the motivational aspect of the stock options. Additionally, stock options can present tremendous earnings potential, but they can also amount to nothing. And in a "young company" that is "still in a 'pre-profit' stage of operation", and that has not gone public, raising stock option value may take a long time (if it happens at all). Additionally, for a firm whose base salaries hover around or below industry standards, as is the case with CSI, worthless stock options may cause motivation and retention problems (employees begin to feel under-compensated). In this event, stock option incentives have a reverse effect - employee morale may diminish, negatively impacting performance, which could in turn further degrade the company's success.

CSI cash bonus advantages include that they do not involve a maturity period, which requires waiting for the incentive to gain value - CSI' employees contribute to the firm's annual success and receive a bonus for their collective efforts. Another advantage, particularly at firms like CSI, is that cash bonuses complement their average to below average base salaries. A significant cash bonus disadvantage is the potential to place too much emphasis on the short-term which can instigate