For employee (rather than executive) bonuses and incentives, only 16 percent of American companies are now using stock price, down from 29 percent in 2009.  (1) Instead, companies are using profit in order to more closely link employees’ incentives to spending and budget decisions.  PepsiCo for example recently began using profit and cash flow instead of stock price in order to focus managers on profit and cash-flow targets.  PepsiCo’s CFO, Hugh Johnston, said:  “The change allows our employees to make decisions about spending and profit trade-offs themselves, rather than simply being handed a budget to follow; it’s something they can wrap their arms around and say, ‘Now I understand how I can impact PepsiCo’s stock price.’”  PepsiCo new compensation system based on profit enabled the company to lower its capital spending to 4.5 percent of sales in 2012, down from an historical average of about 5.5 percent.  For upper-level executives, stock price is still the major variable used for compensation incentives, but for mid-and-lower level managers and employees, stock price is dependent on too many extraneous variables for it to be an effective compensation variable.

(1) Emily Chasan, “Stock Loses Some Sway on Pay,” Wall Street Journal (October 30, 2012): B4.