c
  


Vp Clear management structure Vp M e t ree divisions are lack of connection.
Vp ¬mployed a bonus plan for employees. Vp M e transactions between t e t ree
Vp M e AM Marketing division will input divisions dispute t e transfer pricing.
products form t e ot er t ree divisions, Vp ¬M customers preferred t an AM.
and sell it to domestic and foreign market,
it elps t e company save cost w en it
input internal.




 
Vp 3emand is increasing of t e product.
Vp Jew tec nology was broug t into t e
workplace.
Vp M e company can expand t is product
range for ot er ve icles
M
 
Vp Many competitors in t e industry.
Vp Jew tec nology is also a t reat for t e
company. M e company needs to c ange a
lot of t ings to adapt it.

2. ¬valuation for t e current divisional and plant performance measurement system.

Recently, t e company as 4 divisions wit 3 product division.

M e transfer pricing is used w en product is transferred from ¬M division to AM division. But t ere is a
problem to use t is met od, w en t e new product does not ave istorical prices, t erefore it can͛t be
adjusted easily as ot er regular products.

AM division customers are treated as captive customers. But t e company t inks ¬M customers better
for t e company, so t e company always gives preference t oug tful to ¬M customers.

M e current measurement system of t e company is R . M e R target is set based on budget profit

divided by actual beginning of t e year net assets. Actual R is calculating by actual profit divided by
actual beginning of t e year net asset. M e advantage of t e Abrams Company R system is it does not
consider t e investment added during t e year, because t e investments provide little effort to t e
year, but more benefit to t e future. However, t e R measurement system as some weakness, suc
as defer asset replacement, s ort-term focus at t e expense of long-term.

3. Suggestions to improve t e current divisional and plant performance evaluation system.

Mo ave inventory turnover being part of t e evaluation system so t at t ey can reduce stock on and

R can be used combination wit ot er performance measures-balanced set of long-term/s ort term;
financial non-financial
4. ¬valuate t e existing incentive compensation plan of Abrams.

M e incentive compensation plan of Abrams Company is bonus plan, and it calculates accurately based
on an equation, and it seems equal for all members. M e dollar amount of corporate bonus pool was
establis ed by a fixed formula linked to company earning per s are. M is incentive compensation plan
can be considered as a reward system. Using t is met od t e company can increase or maintain
motivation.

5. Suggestions to improve t e existing incentive compensation plan.

M ere is no encouragement in t e plan so t at continues ac ievement can be ac ieved.

Wit t e firm top 5% workers t at exceed t eir targets by t e ig est percentage amount s ould get
special bonus rewards.
SAMPL¬ 2

1. SWM analysis:

Strengt : M e Abrams Company as t ree different products divisions, and one AM marketing division.
M e t ree product divisions are independent to eac ot er, because of t ey produce different products,
and sell to different ¬M and t is could ensure t at w en a division makes a loss, ot er division will not
suffer t e same t ing. M e AM Marketing division will input products form t e ot er t ree divisions, and
sell it to domestic and foreign market, it elps t e company save cost w en it input internal.

Weakness: M e Abrams Company as t ree totally independent divisions, and t e t ree divisions are
lack of connection. M ey purc ase t eir materials separately, and t ey carried excessive inventories
most of t e year. Also, inside sales sometimes need a negotiation on price, t e may lead to low
productivity.

pportunity: M e Abrams Company is focus on t eir product innovation and cost-effective to satisfy
t eir customers͛ needs. t provides a good quality to t eir customer. However, t e Abrams Company
s ould not only be focus on t eir products, but also focus on t eir brand name, and provide good
services to t eir customer. M en t e company may be more competitive in t e future.

M reaten: M e Abrams Company use R approac , and t e incentive compensation plans consider t e
R as well, so it does not encourage managers from investing in projects t at will decrease t eir R . As
a result, it limited t e development of t e company. Also, t e t ree product divisions are not treating
t e MA Marketing division as equal as ¬Ms, t ey are taking t e order of ¬Ms first, so it may lead to
complains wit in t e company, and cause t e MA Marketing division low productivity, and t is is a
t reaten for a company develops as a w ole.

2. ¬valuation of current divisional and plant measurement system:

M e current measurement system of Abrams Company is R , eac manufacturing plant wit in t e t ree
product divisions ave an annual R target to meet. M e R target is set based on budget profit
divided by actual beginning of t e year net assets. Actual R is calculating by actual profit divided by
actual beginning of t e year net asset. M e advantage of t e Abrams Company R system is it does not
consider t e investment added during t e year, because t e investments provide little effort to t e
year, but more benefit to t e future. However, t e R measurement system as some weakness, suc
as defer asset replacement, s ort-term focus at t e expense of long-term.
3. Suggestions to improve evaluation system:

[R can be used combination wit ot er performance measures-balanced set of long-term/s ort
term; financial/non-financial

R / ¬
A can be used instead of R .

4. ¬valuation of incentive compensation plan:

M e incentive compensation plan of Abrams Company is bonus plan, and it calculate accurately based on
an equation, and it seems equal for all members. n addition, some adjustments also are made associate
wit t e performance of t e managers. M e performance is measured by compare of actual profit and
budget profit. However, all t e measurement is associate wit data, sometimes t e performance will be
influence by variance elements, suc as, economic environment, t e demand level, material price, cost
of labor, and government policy, so t e measurement need to improve in some areas.

5. Suggestions: M e non-financial performance measurement system s ould be establis ed. M e

balanced scorecard is a good c oice for company measure performance. Wit a good performance
measurement system, t e incentive compensation plan will be improved.