Desc Introduction To find out whether or not Mr. Gonzales should implement the new compensation plan, we will initiate with a valuation of the proposed bonus plan that he is considering. This evaluation will include an analysis of the key decisions and the persons responsible for making the decision as well as a discussion of the proposed plan. Upon this analysis we will conclude whether it is a good idea to implement it and state our suggestions for a modification of the plan.
Get Access Introduction To find out whether or not Mr. Gonzales should implement the new compensation plan, we will initiate with a valuation of the proposed bonus plan that he is considering. This evaluation will include an analysis of the key decisions and the persons responsible Las ferreterias de mexico case study solution making the decision as well as a discussion of the proposed plan.
Upon this analysis we will conclude whether it is a good idea to implement it and state our suggestions for a modification of the plan. Valuation of the proposed bonus plan Included in the new bonus plan are the store managers SMthe regional managers RMand the corporate staff managers CM.
Not included are the CEO Mr. Gonzalez and the COO; their bonuses would be decided by the compensation committee of the board of directors. The 82 store are organized into 9 geographical regions.
The RMs are responsible for providing oversight and advice to the SMs, whom had little formal education. On the top of these two manager levels are the CMs, who are responsible for a range of centralized functions including purchasing, human resources, marketing, real estate, and investor relations.
The proposed bonus plan consists of 4 million pesos plus 8 percent of the corporate income before bonuses and taxes in excess of million pesos. The total bonus pool will be divided between the managers as following: This year, the bonus pool will amount to 8, million pesos all calculations: These cutoffs stipulate an acceptable minimum performance, while restricting superior performance.
Denying bonuses for exceptionally good efforts can be justified by the fact that the performance results can be good luck. Moreover it, to a certain degree, ensures that the managers will not be myopic, which again ensures that the company will show a more steady performance improvement over time.
Another reason for the upper cutoff level on the incentive payments might be a desire of not paying lower-level mangers more than upper level managers. In this case, a SM gets 72, A top-performing SM cannot earn more thanUsing ROI as the central measurement of performance causes some problems: All bonuses will be paid in cash as soon as financial statements have been prepared.
Beside the problems of using ROI as the central measurement element we see following problems with the new incentive plan: Furthermore, cash bonuses can generate durability issues, i. On one hand, motivational incentives are highly individual, and preferences may vary greatly across the regions.
It is difficult to implement such a tailored plan due to the vast scope of the project: So even though the motivational effect might be higher for an individual tailored incentive program, a single strategy with common performance standards for all stores may be much easier and cost-efficient to implement.
The new bonuses are greater than before, and should therefore stipulate improved operating efficiencies. Since ROI is the central element in calculating the bonuses, there is a risk of suboptimization, but since the bonus is partially determined through the corporate profit, the managers should also be concerned with the overall operating efficiency of the company.
Ultimately an improvement within operating efficiency should lead to an increase in market shares. By tieing the rewards of the employees to the overall performance of the company, it would inevitably commit them — given that the employees have sufficient possibilities for influencing the results.
In this case, the managers have a lot of responsibility and have many channels by which they can control and influence the results. In this way, it makes good sense to base the bonuses on a proportion of corporate profit.
Proposals for modification of the compensation plan The SMs have a lot of responsibility which is not corresponding to their level of education and their level of bonus. Compared to the RMs and CMs, who are better educated and have more experience, however, the bonus levels are fair.
Thus it will be difficult to justify a higher bonus-level for the SMs, based on their current educational level. A possible solution will be to make a compulsory training program in finance and management.
When the SMs have passed the courses, they will be qualified to receive a larger bonus. The training program will be an overall gain for the whole enterprise, since they will have more competent employees. So even though this extension does not make the incentive plan cheaper, it will be a gain for the company in the long run.Las Ferreterias de Mexico Good management- Most of the Employees value rewards of different nature and they are therefore motivated by positive rewards.
Employees are known to put less effort to those activities or tasks that are not well rewarded and hence in order to motivate them in their work, a good scheme for rewarding them is important.
Accounting: Text and Cases 12e – Instructor’s Manual Anthony/Hawkins/Merchant 4 (3) The operational change for the college will be the shift in publication responsibility from CP to the other units.
might usefully be completed before starting the discussion of the new system (questions one and three).
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