Merchant

How and why firms disregard the controllability principle?

Introduction

appraising

 the

 performance

 of

 divisional

  management,

 no

 account

 should

 be

 taken

 of

 matters

  outside

 the

 division’s

 control.”

!  

 “It

 is

 almost

 a

 self-­‐evident

 proposition

 that,

 in

Research method

ü  Conduct

 a

 field

 study

 in

 three

 firms

 from

 different

 industries

  ü  Limit

 the

 scope

 of

 investigation

 to

 the

 lower-­‐level

 general

managers

ü  Interview

 corporate

 staff

 personnel

 to

 understand

 the

 extent

 to

which

 each

 firm

 implemented

 the

 controllability

 principle

The distribution corporation

Organization • Excellent performance: among the Fortune 50 list of largest diversified service companies • 80 companies: president of the corporation, company president, group vice president • Privately held businesses Performance measurement • Management Bonus Plan: company presidents can earn +50% of base salary as bonus • Income component : depending on business (weighted 60-80%) • prerequisite of the bonus plan: a minimum level of performance on the income component is reached • Key objectives component • Adjustments are made for un-anticipated nonrecurring gains or losses during the year. Conclusion • Controllability principle is partially applied. • Presidents bear considerable business risk. • Adjustments are more likely to be made for uncontrollable events

The chemical corporation

Context •  long successful history but poor recent performance •  20 divisions with various levels of autonomy 3 steps in the calculation of awards: • 1) determination of the total award fund and subjective adjustments with respect to unforeseen economic factors or cost factors • 2) allocation of the award fund to the entities depending on...