Vital Metal Inc.

Vital Metal, Inc. (VMI) is a large aluminum producer. Nothing could be said about their production nor their inventories and shipments; they're exceptional. However, the same could not be said about their employees' compensation system.

For sales purposes, VMI is geographically divided into 5 major areas. These major areas are, in turn, further divided into smaller areas called districts. The remuneration system of VMI is a monthly salary and an incentive plan for every salesperson, the bonus of which is payable at the end of the year. The bonus is based on how each district fares against a quota. If sales exceed 85% of the quota, each salesperson will receive a percentage up to a maximum bonus of 33 1/3% of his average yearly salary. In the previous year, the quota was set higher than expected but employees worked hard to reach the quota. Many have already spent their bonuses even though they have not received it and because of this, many are hampered with debts when costumers cancelled their orders. In the following year, the economy was at an upturn and the salespeople doing well in reaching the quota. Unfortunately, at the middle of the year, demand slacked, many cancelled their contracts, and inflations were high. To make up for these events, the management decided to shift the quota upward. The sales force was incredulous, upset, disheartened. Because of the sudden change in target, employees took only half of their anticipated bonus. However, the management, when confronted about this matter, doesn't think anything was wrong with this.

CURRENT ANALYSIS

Currently, the Vital Metals Inc. is experiencing a negative reaction to the newly imposed sales quota from its employees. The company incentive plan provides a bonus, payable at the end of a year, based upon how well the sales district, which is a sub-unit of one of the five geographical areas of the company, has performed throughout the year. The company sets a target quota in dollar volume sales...