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$3.$ Pay for Organizational Performance

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Pay for Organizational Performance

Two important ways organizations measure their performance are in terms of their profits and their stock price. In a competitive marketplace, profits result when an organization is efficiently providing products or services that customers want at a price they are willing to pay. Stock is the owners$$ investment in a corporation; when the stock price is rising, the value of that investment is growing. Many organizations offer incentive pay tied to these two performance measures with the expectation that employees will focus on what$$s best for the organization.

Profit$-$sharing plans pay incentives based on the performance of the organization, and ownership plans give employees an equity stake in the company, the value of which rises and falls with the company's stock price. Advantages and disadvantages of profit sharing, stock options, and employee stock ownership plans $($ESOPs$)$ are addressed. In this activity, you will be introduced to Andrew Westbrook, an executive at Titan Consulting. You will answer questions about the way that his stock ownership plan may $($or may not$)$ motivate him to perform.

Read the case below and answer the questions that follow.

Andrew Westbrook, a $15-$year veteran in the consulting industry, is an assistant vice president of marketing for Titan Consulting, the second largest consulting company in the United States. As part of his compensation package, he has received stock options in the company over the years. Because Titan has grown rapidly during his time there, Andrew $($along with many others at the organization$)$ has reaped a great deal of benefit from the stock options he has received.

Like many companies, the value of Titan stock has decreased substantially over the past few years. The majority of Andrew's options entitle him to purchase stock for $$22$ per share; Titan's stock currently trades at $$15.$ The ongoing global recovery is expected to continue to weigh on Titan's results; the company $($and its stock$)$ is not expected to grow much in the short$-$to$-$medium time horizon. Titan policy prevents Andrew from selling his stock until he leaves the firm.

$3$a$.$ Under what circumstances will Andrew's stock options generate any gain for him?

Under what circumstances will Andrew's stock options generate any gain for him?

Multiple Choice

if the stock price goes up from $$15$

if the company adopts a gain sharing plan

if the stock price goes up to $$19$

if his individual performance exceeds expectations

if the stock price goes above $$22$