Management Compensation Plan

Davis$-$Thompson$-$Howard & Associates $($DTH$)$ is a large consulting firm that specializes in the evaluation of governmental programs. The lawyers, accountants, engineers,

and other specialists at DTH evaluate both the performance of existing programs and the success of potential new government programs. DTH obtains most of its

consulting engagements by completing proposals in open bidding for the services desired by governmental agencies. The competition for these proposals has increased in

recent years, and as a result, DTH$\text{'}$s yield $($the number of new engagements divided by proposals$)$ has fallen from $49\%$ a few years ago to only $26\%$ in the most recent year.

The firm's profitability has fallen as well. DTH has decided to study its management compensation plan as one step among the many it will take in attempting to return the

firm to its previous level of profitability.

DTH has six regional offices, two located near Washington, DC$,$ and the others near large metropolitan areas where most of its clients are located. Each office is headed by

an office manager who is one of the flrm$\text{'}$s professional associates. The firm's services in these offlces are classifled into financial and operational audit services, educational

evaluation, engineering consulting, and financial systems. The Washington offices tend to provide most of the financial and audit services, and the other offices offer their

own mix of professional services. No two offices are alike because each has adapted to the needs of its regional client base. DTH$\text{'}$s objective is to be among the three most

competitive firms in its areas of service and to increase its revenues by at least $10\%$ per year.

DTH$\text{'}$s compensation plan awards each office a bonus based on $(1)$ the increase in billings over the prior year and $(2)$ the number of net new clients acquired in the current

year. The office manager has the authority to divide the office bonus as appropriate, although these same two criteria are generally used to allocate it to the office

professionals. Top management is not aware of any problems with the compensation plan; there have been no significant complaints.

One observation by the CEO might suggest a reason for the firm's decline in yield of proposals. It has been losing out particularly on large new contract proposals that

require a large number of staff and a significant professional travel commitment. These are jobs for which it would be necessary to coordinate two or more DTH offices. The

CEO notes that DTH has as many regional offices as most of its competitors, which now seem to be winning a larger share of these contracts.

Required $1-$ page description: Explain the Management Compensation Plan of DTH Company.