Chris Moreno seeks your advice on revising the existing bonus plan for division managers of Global Event Group. Assume division managers do not like bearing risk. Moreno is considering 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.

Required

1. Evaluate the three ideas Moreno has put forth using performance-evaluation concepts described in this chapter. Indicate the positive and negative features of each proposal.

2. Moreno is concerned that the pressure for short-run performance may cause managers to cut corners. What systems might Moreno introduce to avoid this problem? Explain briefly.

3. Moreno is also concerned that the pressure for short-run performance might cause managers to ignore emerging threats and opportunities. What system might Moreno introduce to prevent this problem? Explain briefly.