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Potato_Octopi t1_j2dr5b1 wrote

Reply to comment by angrybird7677 in ELI5: Why do companies require annual budget be spent 100%? by angrybird7677

Storing money in a coffer isn't an inherent good. You should either be improving the company with that cash or returning it to shareholders.

If you let cash pile up the business with either issue a dividend, share buyback or make an acquisition, etc.

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Generallybadadvice t1_j2dsy3g wrote

Or how about giving it to the employees who made it all possible...

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FrankDrakman t1_j2e6l7y wrote

Incentive pay systems are a bitch to design, because people are so good at gaming them. One call centre I worked at had contests on Friday if weekly sales had been down. One woman, no matter how bad she was doing by lunch, always pulled out a bunch of sales in the afternoon, and was given the $50 cash prize.

I was the data analyst, and got suspicious. Sure enough, all most of those 'sales' would be cancelled on Tuesday or Wednesday of the next week. We listened to the tapes of her sales calls, and heard "I'll put the order in to reserve your spot; if you change your mind over the weekend, you can cancel." She didn't deny any of this when confronted with the evidence; she also didn't come back to work the next day, or ever after.

Also, the top performers on each team seemed to win week after week, which makes sense. They are the best sales people, so they generally sell more at all times. But an incentive that goes to the top performers most of the time only reinforces an "us vs them" mentality on the sales team, where the top performers are seen as getting the best leads (they do), and getting the most slack for things like being late, etc. (they did). As I said, designing a good, fair, working incentive system that can't be 'gamed' is not easy.

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Potato_Octopi t1_j2dt9pq wrote

Sure, when a company has a good year bonuses are generally higher.

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fede142857 t1_j2e91o3 wrote

If a company spends its entire profit paying its employees, the slightest dip in revenue forces it to work at a loss, if the situation persists for long enough it can obviously lead to bankruptcy

Not to mention potential issues like equipment/machinery/whatever breaking and not being able to afford getting it repaired or replaced because you gave the whole profit to your employees

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moysauce3 t1_j2ejzr9 wrote

Some times it’s just not possible. Incentive comp hits EBITDA. There may be some bank covenants or loan requirements that need EBITDA to be certain amount or be above certain ratios or have certain amount of cash/AR on hand. There maybe a fee the company has to pay to the bank or lender for not being in compliance or even complete payback.

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Fmatosqg t1_j2eu2sl wrote

Insert thrown out the window meme

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