Submitted by: Submitted by interlove11
Views: 198
Words: 638
Pages: 3
Category: Business and Industry
Date Submitted: 06/03/2012 05:21 AM
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...