While examples of guaranteed payment exist, the length ND size of the payments is considered uncommon. In 2005, the CEO received his guaranteed bonus while the amount of money allotted to the non-salaried employee bonus program decreased by 50 percent. Questions: 1 . How does expected performance relate to the current business outlook? 2. What are the results that need to be achieved In the short and long term? 3. Is senior management prepared to support and communicate this program or issue? 4. Are compensation committee members/board of director members familiar with similar programs or issues? . Has the compensation committee/board of directors reviewed animal compensation programs or Issues In the past? ENRON CORP. In the late sass and into 2001, Enron Corp.. Provided its executives with compensation packages that included equity stakes in business units. Although many companies use equity In rewards programs, the amounts provided to Enron executives were unusually large (greater than 5 percent) and not tied to long-term performance because executives were allowed to convert their equity into either than $310 million by converting equity stakes into cash.
In addition to the equity stakes, Enron rewarded two executives large cash bonuses of $54 million and $42 million. The chairman/chief executive of a subsidiary allegedly received a 20-percent stake in his unit, thus becoming a minority owner. He eventually converted his stake into more than $20 million in cash before leaving the company. The executive’s stake, however, was not listed on any company’s proxy filings, despite the fact that the stake diluted the value of the shareholders’ investments. 1 . Are there particular communities/social or political activists that will react to this plan? 2.
To what extent do you want to match or differ from market pay practices? 3. Do you know what financial constraints may affect program design? 4. Has your accounting division reviewed this program design from an accounting treatment perspective? 5. What are the results that need to be achieved in the short and long term? Case #28 KGB HOME The CEO of KGB Home departed in 2006 after an internal investigation revealed that he had backdated his own stock options. The company’s internal investigation indicated that the CEO and head of HER had probably altered the dates of stock option grants between 1998 and 2005.
As a result of the backdating, the company indicated a need to restate more than three years of financial results and incur an additional compensation expense of more than $41 million. Despite the scandal and ongoing investigation at the time of his departure, the terms of the Coo’s employment agreement provided him with the ability to collect as much as $175 million in severance, pension and stock. Because of the backdated options scandal, the company adopted a new policy that all stock option grants and the terms of the grants be approved by the compensation committee.
The company also appointed a nonconsecutive chairman of the board, a chief compliance officer, and did not grant any stock options to executives in 2006. 1 . To what extent is the legal department involved in compensation planning, design, administration and disclosure? 2. Is the legal department comfortable with this design in the current legal/regulatory environment? 3. What is the likely perspective population perceive this program as fair? 5. How and when will you disclose this plan to shareholders? Case #29 WALT DISNEY CO. In 2003, Walt Disney Co. Warehouses filed a lawsuit relating to the $140 million severance package paid to the former the president. Shareholders contended that the directors knowingly or intentionally “breached their fiduciary duty of due care in approving (the president’s) employment agreement,” and failed to consider the terms f the termination ? which was allegedly negotiated exclusively by the CEO. Although the court agreed with shareholders that the CEO had exclusively negotiated the deal and orchestrated the president’s hire without input from the board of directors, it found that neither he nor the other directors breached their fiduciary duty.
The court did, however, “criticize the members of the compensation committee for not doing more to inform themselves of the terms of Vita’s employment agreement and to become involved in the review and approval process. 1 . What is the process for developing responses and communicating with Warehouses? 2. To what degree does the compensation philosophy align with corporate strategy, culture and organizational resources? 3. What are shareholder expectations about your compensation programs and how do they affect program design? 4. Is senior management prepared to support and communicate this program or issue? . Tools and processes are in place to support compensation committee decision making (e. G. , tally sheets)? Between 2000 and 2002 World CEO Bernard Beers obtained unsecured loans amounting to 20 percent of the firm’s cash, allegedly at interest rates well below the market rates for large margin loans. Upon leaving the organization, Beers still owed $408 million. World subsequently entered bankruptcy and the share price dropped dramatically. Beers was then unable to pay back the loan by selling his shares, as he had allegedly planned.
If the compensation committee had secured the loans, Beers’ shares might have been seized in order to sell them to cover the loan when the stock price was still high enough to do so. 1 . Do you have the necessary systems to operational and administer this program? 2. Are there key stakeholders or influences (HER, legal, tax) that need to be part of the program development process? . Is your finance/accounting department prepared to support any special reporting requirements for this program? 4. What is the role of finance/accounting in plan design? . What is the company’s position on appropriate level of transparency (disclosing more than is required, simplification of written communications)? Case #31 Is Raja in needs of Remedial Training? Raja Sahara has been employed for six months in the accounts section of a large manufacturing company in Abridged. You have been his supervisor for the past three months. Recently you have been asked by the management to find out the intrusions of each employee in the Accounts Section and monitor carefully whether they are meeting the standards set by you.
A few days back you have completed your formal investigation and with the exception of Raja, all seem to be meeting the targets set by you. Along with numerous errors, Raja’s work is characterized by low performance – often he does 20 percent less than the other clerks in the department. As you look into Raja’s performance review sheets again, you begin to wonder 1 . As Raja’s supervisor can you find out whether the poor performance is due to poor training or to some other cause? . If you find Raja has been inadequately trained, how do you go about introducing a remedial training programmer? . If he has been with the company six months, what kind of remedial programmer would be best? 4. Should you supervise him more closely? Can you do this without making it obvious to him and his co-workers? 5. Should you discuss the situation with Raja? Case #32 SONS AND ARPA COMPANY The Sons and ARPA Company manufactured wooden toys of various kinds; wooden animals, pull toys, and the like. One part of the manufacturing process involved spraying paint on the partially assembled toys. This operation was staffed entirely by women. The toys were cut, sanded and partially assembled in the wood room.
Then they were dipped into shellac, following which they were painted. The toys were predominantly two colored; a few were made in more than two colors. Each color required an additional trip through the paint room. For a number of years, production of these toys had been entirely and work. However, to meet the tremendously increase in demand, the painting operation had recently been re- engineered so that the eight operators (all women) who did the painting sat in a line by an endless chain of hooks. Those hooks were in continuous motion, past the line of operators and into a long horizontal oven.
Each woman sat at her own painting booth so designed as to carry away fumes and to backstop excess paint. The operator would take a toy from the tray beside her, position it in a Gig inside the painting cubicle, spray on the color according to a pattern, then release the toy and hand it to the hook passing by. The rate at which the hooks moved has been calculated by the engineers so that each hook before it passed beyond her reach. The operators working in the pain room were on a group bonus plan. Since the operation was new to them, they were, receiving a learning bonus, which decreased by regular amounts each month.
The learning bonus was scheduled to vanish in six months, by which time it was expected that they would be on their own, that is, able to meet the standard and to earn a group bonus when they exceeded it. By the second month of the training period. Trouble had developed. The employees learned more slowly than had been anticipated, and it began to look as though their production would stabilize complained that they were going by too fast, and that the time study man had set the rates wrong. A few women quit and had to be replaced with new operators, which further aggravated the learning problem.
The team spirit that the management had expected to develop automatically through the group bonus was not in evidence except as an expression of what the engineers called “resistance”. One woman whom the group regarded as its -leader (and the management regarded as the ring-leader) was outspoken by voicing the various complaints of the group before the foreman; the Job was messy one, the hooks moved too fast, the incentive pay was not being correctly calculated, and it was too hot working so close to the drying oven. A consultant who was brought into this picture worked entirely with and through the foreman.
After many conversations with him, the foreman felt that the first step should be to get the employees together for a general discussion of the working conditions. He took this step with some hesitation, but he took on his own volition. The first meeting, held immediately after the shift was over at four o’clock in the afternoon was attended by all the eight operators. They voiced the same complaints again: the hook sent by too fast, the Job was too dirty, the room was hot and poorly ventilated. For some reason, it was this last item that they complained of most.
The foreman promised to discuss the problem of ventilation and temperature with the engineers, and he scheduled a second meeting to report back to the employees. In the next few days the foreman had several talks with the engineers. They and the superintendent felt that this was really a trumped-up complaint, and that expense of any effective corrective measure would be prohibitively high. The foreman came to the second meeting with some apprehensions. The operators, however, did not seem to be much put out, perhaps because they had a proposal of their own to make.
They let that if several large fans were set up so as to circulate the air around their feet, they would be much more comfortable. After some discussion, the foreman agreed that the idea might be tried out. The foreman and the consultant discussed the question of the fans with the superintendent, and three large propeller-type fans were purchased. The fans were brought in. The women were Jubilant. For several days the fans were moved about in various positions until they were placed to the satisfaction of the group.
The operators seemed completely satisfied with the results, and the relations between them and the foreman improved visibly. The foreman, after this encouraging episode; decided that further meetings might also be profitable. He asked the operators if they would like to meet and discuss other aspect of the work situation. They were eager to do this. The meeting was held, and the discussion quickly centered on the speed of the hooks. The operators maintained that the time study man had them at an unreasonably fast speed and that they would never be able to reach the goal of filling enough of them to make a bonus.
The turning point of the discussion came when the group’s leader frankly explained that he point wasn’t that they couldn’t work fast enough to keep up with the hooks, but they couldn’t work at that pace all the day long. The foreman explored the point. The employees were unanimous in their opinion that they could keep up with the belt for short periods if they wanted to. But they didn’t want because if they showed they could do this for short periods they would be expected to do it all day long. The faster or slower depending on how we feel”. The foreman agreed to discuss this with the superintendent and the engineers.
The reaction of the engineers to the suggestion was negative. However, after several meetings it was granted that there was some latitude within which variations in the speed of the hooks would not affect the finished product. After considerable argument with the engineers, it was agreed to tryout the operators’ idea. With misgiving?, the foreman had a control with a dial marked ‘low, medium, fast’ installed at the booth of the group leader; she could now adjust the speed of the belt anywhere between the lower and upper limits that the engineers had set.
The operators were delighted and spent many lunch hours deciding how the speed of the belt should be varied from hour to hour throughout he day. Within a week the pattern had settle down to one which the first half-hour of the shift was run on what the operators called a ‘medium’ speed (a dial setting slightly above the point marked ‘medium’). The next two-and-a-half hours were run at ‘high’ speed the half-hour before lunch and half hour after lunch were run at ‘low’ speed.
The rest of the afternoon was run at ‘high speed’ with the exception of the last 45 minutes of the shift, which was run at ‘medium’. In view of the operators’ reports of satisfaction and ease in work, it is interesting to note that the constant speed at which ,the engineers has originally set the belt was slightly below medium on the dial of the control that had been given to the women. The average speed at which they were running the belt was on the high side of the dial. Few, if any empty hooks entered the oven, and inspection showed no increase of rejects from the paint room.
Production increased, and within 2 weeks (some 2 months before the scheduled ending of the learning bonus) the operators were operating at 30 to 50 per cent above the level that had been expected under the original arrangement. Naturally their earnings were correspondingly higher than anticipated. They were collecting their base pay, a considerable piece-rate bonus, and the learning bonus which, it will be remembered, had been set to decrease with time and not as a function of current productivity. The operators were earning more than many skilled workers in other parts of the plant. 1 .
From the angle of Job enrichment, which core Job dimension or Job characteristic was most influenced by new system of group regulated speed? Evaluate the reported success of the case against the principles of Job Enrichment. 2. Comment on the method of payment to the operators. How good do you think such a system is? 3-4. Would you consider the initial discontent of the operators as a grievance? Why or why not? 5. How would you characterize the involvement of the operators after the introduction of group-regulated speed? OLD ORDER CHANGED? Modern Industries Limited (MIL) in Bangor is an automobile ancillary industry.
The company started manufacturing automotive components over two decades ago in a small way and has grown steadily over the years, employing over 4,000 persons at present with the turnover exceeding RSI. 100 scores. Its products are selling well and earning a sizeable amount of profits. The company is controlled and managed by an industrialist family. Known for their shrewdness and business acumen. They are among the first generation industrialists who started their industrial ventures in a modest way, during the early phase of industrialization in the country and along with the growth of automotive industry, MIL also grew up.
The present Chairman, Mr.. Surest Shah had been with the company right from its inception; He started his career as an engineer trainee, rose to the position of the Managing Director and in 1983 became the company’s Chairman. As a result, he is acquainted with every minute detail and also with every employee who has been in the company for long. He continues to keep in close touch with them and is easily accessible to all of them, overruling hierarchy. A high premium is placed on their loyalty and their long services are valued.
The Chairman of the company firmly believes that each one of them has contributed significantly towards the growth of the company. In the light of the fact that the company maintained a “strong utilitarian culture” all along, the contribution of each and every employee had to be substantial and they were rewarded accordingly. At the same time, there were many instances, where the services were terminated due to inadequate performance. Mr.. Kandahar Taker owned MIL as a training instructor, over two decades ago. Prior to that, he served as an instructor at an Industrial Training Institute.
He had himself obtained the craft instructors’ certificate from IT’. He was 35 years old and his main task was to recruit young persons as trainees, either under the Apprentices Act or as company trainees and then train them as craftsmen. Most of these trainees were absorbed to meet the growing needs of the company, and Mr.. Shah used to personally involve himself in the process of recruitment and training of craftsmen. Mr.. Taker was directly reporting to Mr.. Shah, despite the vast gap in the hierarchy. Mr.. Taker was promoted to the rank of training Superintendent in 1980, though there was not much change in his Job content.
The growing phase of the company was practically over by that time, and the Apprentice training became a mere statutory activity. The company did not have the vacancies to absorb the trained apprentices, and therefore, Me. Became a subsidiary activity and was not given much importance. The winds of change were blowing through MIL also. Mr.. Nail Shah, the son of the founder industrialist took over as the Managing Director of MIL in 1983, whereas Mr.. Rammers Shah continued to be the Chairman of the company. The young MD was full of new ideas.
He wanted to revivalist the company from all aspects and diversify into high technology areas. He wanted to modernize the present plant and change the management style from the traditional direct control approach to a systems controlled approach. A modern computer was bought and computerizing was introduced. The company had to face many problems while introducing these changes. One of the major hurdles was the problem of a number of senior employees, who were not adequately qualified or developed, but had grown into senior positions. Earlier the touchstone was loyalty and hard work rather than impotence.
In the light of this situation, new competent professionals had to be hired to introduce the changes. MIL was well-known for its aggressive personnel policies. Anyone who Joined the company had to struggle hard for his survival as the company was ruthless in sacking those who were not meeting the requirements. It was particularly so in case of the new appointees, which in turn necessitated them to be ruthless in their work The older employees felt threatened and resented the changes and the consequent pressures. Therefore, they collectively approached the Chairman and requested him to intervene and safeguard their interests.
The Chairman, who was not himself happy with all the changes, issued instructions to the MD, to the effect that no old employee be dislocated. The new MD had no other option but to comply with the order. The MD was interested in trying out the HARD approaches to train all the employees, particularly employees who were turning out to be deadwood’s. He hired Mr.. Kumar in 1984 as a Training Manager. Mr.. Kumar was basically an engineer but had considerable experience with a multinational company in the field of HARD, particularly in Training and Management Development. He reorganized the training set up by inducting two Assistant Managers.
Mr.. Taker was next to the Assistant Managers in the hierarchy ‘and reported to Mr.. Kumar directly and continued to manage the affairs related to apprenticeship training. Until Mr.. Kumar came along, Mr.. Taker had enjoyed the position of the head of the training division, though there was no other training activity apart from apprenticeship training. He was operating independently and was reporting directly to the MD. He continued to do so even after the organization have grown in proportion. Mr.. Taker felt demoted in the new set up. Fie lost his position and individuality in the organization, and his pride was seriously hurt.
He was not prepared to accept Mr.. Kumar as his boss . And he started behaving in an irrational manner. He resented the vast gap created between him and the top man in the new structure. Mr.. Kumar tolerated him with the hope that Mr.. Taker would reconcile himself to the changes, in time. Unfortunately, he continued to behave in the same way and there was no improvement even after one year. When Mr.. Kumar tried to counsel him, Mr.. Taker demanded to be promoted to the level of Assistant Manager, as he happened to be the senior most people in the department. Kumar promised to look into his demand.
On a careful analysis of the personal docket of Mr.. Taker and all the previous the Job that he was doing. Leave alone being entitled for further promotion, Mr.. Taker was not even fit for his present position. The company did not have a formal performance appraisal system. Its products were selling well, the profitability was good and accordingly all the employees were rewarded well. Promotions and extra increments were given arbitrarily based on the personal likes and dislikes of the top man, rather than on any objective analysis of performance or potential of an individual.
No formal manpower planning or organizational planning existed. No efforts were made to forecast implications of such a system in future. On the whole, the company did not have any formal projection for the future. The company followed the practice of giving long service . Certificates and awards to all those who had completed 20 years of service in the company. Mr.. Taker had got his certificate only recently. There were several employees belonging to Mr.. Thacker’s category. All of them united and met both formally and informally to discuss their strategies and demands. They used to put up their grievances to the management collectively.
They had established a very strong rapport with the Chairman, Mr.. Shah. Mr.. Kumar presented all the facts to Mr.. Taker to convince him that his promotion was not possible. As the latter was not used to the kind of logic presented by Mr.. Kumar, he dismissed all his arguments as sophisticated Jargon, irrelevant to the context of his company. He was particularly bitter about the fact that his promotion was turned down whereas there were several people with similar background who have got their promotions. Therefore, there was further deterioration in his behavior. He started ignoring the directions of Mr..
Kumar and worked as per his own whims and fancies, behaving arrogantly. He even went to the extent of challenging Mr.. Kumar that he could neither promote him nor demote him in the prevailing situation. So long as he was protected by the Chairman of the company, there was nothing for him to worry about and his Job was practically secure. Mr.. Kumar optimistically hoped that Mr.. Taker could overcome his frustration and anger over a period of time. Unfortunately, even after another six months there was no sign of any progress. In fact, the situation deteriorated further with Mr..
Taker becoming more confident in his belief that’ Mr.. Kumar was powerless to deal with him. He turned out to be a drag in the department, purposely creating problems for Mr.. Kumar. In MIL the annual increments and general raises were given as a policy to every employee who is termed as. The “Kanata raise” Mr.. Taker was quite sure that he would get his Kanata raise and reconciled himself to that. Mr.. Kumar tried to stop this raise but could not do so. There were several bullies belonging to Mr.. Thacker’s category in the organization and one of the tasks of the Training Manager was to handle such people.
Though he had organized a few training workshops in the behavioral areas, it had not brought about the required attitudinal changes. Right under his nose he had a person whose behavior he was not able to amend. Mr.. Kumar realized that the desired changes were not possible, so long as the “flat security” was there. Due to a change in the governmental policy, there were several new competitors to MIL and the MD felt there was a strong need and urgency to bring in changes in the organization, to make it more dynamic and competitive. It was no longer possible to carry on the organizational dead woods. Mr.. Kumar was under great pressure to look
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