Brett Gostkowski seeks your advice on revising the existing bonus plan for division managers of World Information Group. Assume division managers do not like bearing risk. Gostkowski is con-sidering three ideas:
• Make each division manager’s compensation depend on division RI.
• Make each division manager’s compensation depend on company- wide RI.
• Use benchmarking and compensate division managers on the basis of their division’s RI minus the RI of the other division.
1. Evaluate Gostkowski’s three ideas using performance- evaluation concepts described in this chapter. Indicate the benefits and drawbacks of each proposal.
2. Gostkowski is concerned that the pressure for short- run performance may cause managers to cut corners. What systems might Gostkowski introduce to avoid this problem? Explain briefly.
3. Gostkowski is also concerned that the pressure for short- run performance might cause managers to ignore emerging threats and opportunities. What system might Gostkowski introduce to prevent this problem? Explain briefly.