Hcc Industries Essay

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HCC industries, a manufacturing company that produces hermetically sealed electronic connection devices along with microelectronic packages, is headquartered in Encino, California. Considering their highly sophisticated product line, one of HCC’s main clients was the U.S Military and government funded aerospace programs. HCC is made up of four distinct operating divisions: Hermetic Seal, Sealtron, Glasseal, and Hermetite. The divisions are highly decentralized and completely autonomous of each other. They all have different customer bases, different product lines and even different accounting systems. The divisions are also profit centers, by definition; each was responsible for their sales, costs, and bottom line. Each division also …show more content…

Bonuses under the stretch method are based on annual performances, but payments are made every quarter. And each quarterly bonus payment is only at 80% actual in order to save management from paying out bonuses that may not be actual. Opponents to this budgeting technique cited that targets were too optimistic, and that rewards were based on complex and subjective measures. And because managers could still receive a small bonus at 60% of budget, bad habits started to form.
In late 1986, HCC CEO Andy Goldfarb met with divisional managers and announced a new budgeting philosophy. The Minimum Performance Standard (MPS) was created to let divisional managers set their budgeting goals at a level they felt was 100% attainable. However, Goldfarb asked each manager to set their targets at levels above what they were currently producing at. The MPS plan was accompanied with a change in incentive plan, in whereby a pool was created that paid 20% of the amount exceeded actual over budgeted PBT (profit before taxes). In addition, 25% of the amount they exceeded the target would be added to the bonus. This allowed managers to see exactly where their bonuses were coming from. If their shipments were at 98% of the budgeted, they would receive close to 100% of the bonus pool set aside for that particular measure. If a manager met only 4 or 5 measurements, then his/her bonus collection would be directly in proportion to that. However, COO Al Berger

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