Use of Linear Compensation Plans
Essentially, this option would sever the relationship between budgets and managerial compensation.
In its place, incentive compensation would be based on a linear compensation plan.
This strategy has two characteristics: (1) managerial reward is independent of budgeted targets,
and (2) managerial reward is a linear function of actual performance: the greater the performance,
the greater the managerial reward (both monetary and nonmonetary). In other words,
this incentive system rewards people for what they actually do, not for what they do relative to
what they say they can do. However, from a practical standpoint this strategy may be difficult
to implement because of the use of budgeted targets in determining managerial rewards.