Murdoch Turner seeks your advice on revising the existing bonus plan for division managers of News Mogul Group.
Assume division managers do not like bearing risk. Turner is considering three ideas:
◆ Make each division manager’s compensation depend on division RI.
◆ Make each division manager’s compensation depend on companywide RI.
◆ Use benchmarking, and compensate division managers on the basis of their division’s RI minus the RI of the other division.
1. Evaluate the three ideas Turner has put forth using performance-evaluation concepts described in this chapter. Indicate the positive and negative features of each proposal.
2. Turner is concerned that the pressure for short-run performance may cause managers to cut corners. What systems might Turner introduce to avoid this problem? Explain briefly.
3. Turner is also concerned that the pressure for short-run performance might cause managers to ignore emerging threats and opportunities. What system might Turner introduce to prevent this problem? Explain briefly.