Hcc Industries

3850 WordsApr 5, 201316 Pages
1. Evaluate the decision to use “minimum performance standard” (MPS) targets instead of “stretch” targets. The purpose of setting a budget system is to briefly forecast a company’s performance in the following year, and it can also be a result control system that makes people in the corporation work properly to achieve the objectives and give them incentives by bonus related to performance. From this point of view, the budget system should be reasonable, achievable, and also have some challenge to ensure the hard working. HCC Industries was using “stretch” performance targets until 1987. The main idea of using “stretch” targets was to motivate managers to perform at the highest level possible by setting aggressive targets with…show more content…
As a result of the lack of communication between division managers, middle managers and employees, division personnel became discouraged and demotivated. In addition, if employees are systematically undercompensated, the corporation may suffer from losing key employees. Another disadvantage of “stretch” performance targets was subjectivity of incentive system. According to the information, provided from the case study, bonuses were paid only to employees included in the bonus plan. It can be concluded that not all employees were included in this plan. Moreover, half of the bonus potential was based on subjective evaluation of top management. However, there is a concern whether top management could judge each division in appropriate way, taking into account all the differences between them. The aforementioned subjective aspect influences performance and motivation of employees. In addition, important demotivating factor was that awards had to be paid quarterly at the level of 80% of what was earned. It took three to four months before they actually were paid because the necessary approvals by several levels were needed before the payments could be made. The remaining 20 % was paid at the end of the year based on annual performance. Taking into account aforementioned challenges of using “stretch” performance targets, the management of the corporation had taken a decision to change the philosophy to “minimum performance

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