Case 2 BMW Aligns Executive Bonuses with Workers Bonuses BMW became the first ma

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Case 2 BMW Aligns Executive Bonuses with Workers Bonuses BMW became the first major blue-chip German company to link the bonuses of its top managers to those of its assembly line workers,amid growing global criticism of executive compensation. The move sends a strong message to other firms also examining their compensation practices, as the world's largest banks in particular have come under fire from politicians, shareholders and the public over excessive bonuses during one of the worst economic crises the world has seen. BMW plans to tie executive bonuses to those of its blue-collar workers, in a bid to create a fairer and sustainable compensation environment within the company. Starting in 2010, the company will use a common formula to ascertain and award bonuses to its upper-and lower-level employees, based on the company's performance as measured by profit, sales, and other factors. That means that upper-level management could potentially lose more money than their lower-level counterparts for bad performance, BMW said. A spokesman for BMW said the company's goal was to create fair and transparent compensation practices and to prevent a gap between management and the workers, as the underclass, from developing. "We don't just want to build sustainable cars. We also want to have sustainable personnel politics. We think this is good for the company culture," the spokesman told a daily newspaper. He declined to be more specific on how the formula will work Other companies may follow BMW's example as pressure grows on firms to curb excessive bonuses in the wake of the financial crisis. German Chancellor Angela Merkel has been outspoken about her dislike for excessive bonuses, calling them "inappropriate. The US president has also been outspoken about excessive compensation. In June 2009, he appointed Atty. Kenneth Feinberg to oversee compensation practices at seven companies that received bailout funds from the government. To that end, Feinberg has devised a plan to cut the total compensation for these companies in half Joseph Sorrentino, managing director with Steven Hall & Partners, a US based executive compensation consulting firm, said a combination of factors including political pressure, government bailouts, public pressure and the declining stock market has led to many companies re-examining their compensation pra taking. actices to make sure they are effectively paying for performance and not encouraging excessive risk "Companies are trying to make sure they balance the public outcry with what they need to make sure they are able to attract and retain their employees," Sorrentino told the daily newspaper. He added that often when big companies such as BMW change their compensation practices, other companies take notice. To be sure, the 8MW spokesman said the company has been discussing its compensation practices for months, and that its announcement has nothing to do with the larger debate over executive compensation circulating through governments currently.

Explanation / Answer

Bonus Strategy - BMW

Compensation and performance linked bonuses are the main factors for which any employee look forward. Companies with the big reputation wisely choose their pay structure keeping in mind that all employees working for company are appropriately paid and feel good about the same.

BMW is a well known firm in the world in the field of automotive industry. As per case study, BMW announced a performance linked bonuses to its all employees including workers to have a single platform for its bonus payout system. Performance linked bonus is calculated based on a formula which calculate the bonus as per the performance of the company and in which company performance as well as employee performance both are taken into account while calculating actual payout. In above case BMW seems to be true in its statement that if company reports its bad performance for the running financial year then definitely upper level management shall potentially lose more money than their lower level counterpart for bad performance. It is obvious that the employee who has highest annual CTC shall have a high bonus cut in case of bad performance and a high bonus payout in case of good performance and the same criteria goes down the line but the lower level counterpart shall have a lower annual CTC hence shall be minimally affected than the top managers.

This definitely sounds like a system that would support BMW's business strategy because if employees whether belongs to higher or lower management shall work towards their individual better performance which in turn lead to the company to perform its best all the time as a whole. Top managers shall also put their all effort to improve the company's performance so that their bonus payouts remain good all the time.

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