Wonkies, Inc. is a large company that owns fast-food restaurants, has a soft drink division, and a snack division. Wonkies, Inc. corporate management gives its division managers considerable operating and investment autonomy in running their divisions. Wonkies, Inc. is considering how it should compensate Mark Hamm, the general manager of the snack division. ■ Proposal 1 calls for paying Hamm a fixed salary. ■ Proposal 2 calls for paying Hamm no salary and compensating him only on the basis of the division’s RI, calculated based on operating income before any bonus payments. ■ Proposal 3 calls for paying Hamm some salary and some bonus based on RI. Q. Wonkies, Inc. competes against Galaxy Industries in the snack business. Galaxy is approximately the same size as the Wonkies snack division and operates in a business environment that is similar to Wonkies. The top management of Wonkies, Inc. is considering evaluating Hamm on the basis of his snack division’s RI minus Galaxy’s RI. Hamm complains that this approach is unfair because the performance of another company, over which he has no control, is included in his performance-evaluation measure. Is Hamm’s complaint valid? Why or why not?
Wonkies, Inc. is a large company that owns fast-food restaurants, has a soft drink division, and a snack division. Wonkies, Inc. corporate management gives its division managers considerable operating and investment autonomy in running their divisions. Wonkies, Inc. is considering how it should compensate Mark Hamm, the general manager of the snack division.
■ Proposal 1 calls for paying Hamm a fixed salary.
■ Proposal 2 calls for paying Hamm no salary and compensating him only on the basis of the division’s RI, calculated based on operating income before any bonus payments.
■ Proposal 3 calls for paying Hamm some salary and some bonus based on RI.
Q. Wonkies, Inc. competes against Galaxy Industries in the snack business. Galaxy is approximately the same size as the Wonkies snack division and operates in a business environment that is similar to Wonkies. The top management of Wonkies, Inc. is considering evaluating Hamm on the basis of his snack division’s RI minus Galaxy’s RI. Hamm complains that this approach is unfair because the performance of another company, over which he has no control, is included in his performance-evaluation measure. Is Hamm’s complaint valid? Why or why not?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
