Reference no: EM1347629

Incentive Pay

Headquartered in Portland, Oregon, Bob's Red Mill Natural Foods sells a variety of whole-grain flours and mixes, specializing in gluten-free products. The "Bob" of the company's name is Bob Moore, the founder and president. In 2010, more than 30 years after he started the business, Moore called his 200 employees together and announced that he was giving them the company. As a retirement plan for them, he had set up an employee stock ownership plan, placing the company's stock in a trust fund. All employees who had been with the company at least three years were immediately fully vested in the plan. As employees retire, they will receive cash for their shares.

Watching the company's stock rise in their retirement plan is not the only financial incentive for employees of Bob's Red Mill. Fifteen years ago, the company established a profit-sharing plan. Chief financial officer John Wagner gives employees a weekly sales update, which they can use to estimate profits and determine their share. The numbers have been mostly good during the past two decades. When Wagner joined the company in 1993, there were just 28 employees generating sales of $3.2 million. Under Wagner's guidance, the company began participating in trade shows, attracting the interest of health food stores, food distributors, and later on, supermarket chains. The company's market expanded from a few states to cover North America and some international markets. The company reports that its revenues have grown at rates between 20 and 30 percent in the years since 2004. Along the way, Moore and his employees have been unwavering in their dedication to the company and its mission of providing foods that make America healthier. Ten years after the business started, a fire caused by arson destroyed the mill, but Moore had it rebuilt, and the company now runs a 15-acre production facility, operating in three shifts, six days a week.

Why did Moore give his company to his employees on his 81st birthday rather than selling it to one of the many parties who have expressed an interest in buying?

For Moore, the answer is all about his employees and their commitment to the company. He told a reporter, "These people are far too good at their jobs for me to just sell [the business]." Employees return the praise. For example, Bo Thomas, maintenance superintendent, said, "It just shows how much faith and trust Bob has in us. For all of us, it's more than just a job."

Questions

1. Which types of incentive pay are described in this case? Are these based on individual, group, or company performance?

2. Would you expect the motivational impact of stock ownership or profit sharing to be different at a small company like Bob's Red Mill than in a large corporation? Explain.

3. Suppose Bob's Red Mill brought you in as a consultant to review the company's total compensation. Explain why you would or would not recommend that the company add other forms of incentive pay, and identify any additional forms of compensation you would recommend for the company's employees.