Question

As the CEO of a small start-up firm, you would like to reward employees based, in part, on organizational performance. However, cash flow is low. Which pay plan should you consider using?

Answer 1

In a small start-up firm with low cash flow, consider using equity-based compensation, profit-sharing plans, or deferred compensation plans to reward employees based on organizational performance.

Step-by-step explanation:

In a small start-up firm with low cash flow, one pay plan to consider is equity-based compensation. This involves granting employees stock options or shares in the company instead of cash bonuses. By offering ownership in the company, employees have a direct stake in the organizational performance, and the firm can conserve cash by not making immediate payments.

Another option to consider is a profit-sharing plan. This allows employees to receive a portion of the company's profits based on a predetermined formula. Unlike traditional bonuses, profit-sharing plans are contingent on the company's performance, which aligns employee incentives with organizational success.

Lastly, a deferred compensation plan can be considered, where employees' pay is delayed to a future date. This can help the company manage its cash flow while still providing a means of rewarding employees based on organizational performance.