Whistlestop Adventure has grown from a one-man operation into a large, soon-to-be-listed, adventure clothing and equipment company. For much of its four-year history, Whistlestop has used one company-wide incentive plan that all employees and managers participated in. The plan is based on equal sharing of a bonus pool determined on the basis of 10 per cent of all profits earned over $2 million. As the company has grown, the benchmark profit figure has changed, but otherwise the plan has remained substantially the same. The company founder explained that the plan was structured this way to encourage an organisational and team view, an objective that has permeated the company’s activities since its beginning.

With the impending stock exchange listing, the newly constituted remuneration committee has been working on the development of new incentive plan for executives and managers. The brief from the board includes the requirement to ‘develop an incentive plan in line with the company’s strategy of revenue growth through high-quality products and customer service, and align the interests of the new executive team with shareholders’.

Required

(a) If you were a member of the remuneration committee of Whistlestop, how would you suggest the incentive plan be structured to meet the requirements set by the board?

(b) What are the dangers for Whistlestop in moving away from the current incentive plan to a new one? How could these dangers be overcome?