Chapter 23, Problem 23.37P

Division managers’ compensation, levers of control (continuation of 23-36). John Mendenhall seeks your advice on revising the existing bonus plan for division managers of News Report Group. Assume division managers do not like bearing risk. Mendenhall is considering three ideas:

• Make each division manager’s compensation depend on division RI.
• Make each division manager’s compensation depend on company-wide RI.
• Use bench marking and compensate division managers on the basis of their division’s RI minus the RI of the other division.

1. 1. Evaluate the three ideas Mendenhall has put forth using performance-evaluation concepts described in this chapter. Indicate the positive and negative features of each proposal.

Required

1. 2. Mendenhall is concerned that the pressure for short-run performance may cause managers to cut corners. What systems might Mendenhall introduce to avoid this problem? Explain briefly.
2. 3. Mendenhall is also concerned that the pressure for short-run performance might cause managers to ignore emerging threats and opportunities. What system might Mendenhall introduce to prevent this problem? Explain briefly.