1. PLEASE ANSWER ALL 3 QUESTION WITH ADVANTAGES AND DIS-ADVANTAGES PLEASE EXPERT

To Renege or Not to Renege?

Federico Garcia, vice president of sales for Puget Sound Building Materials, a company based in Tacoma, Washington, wasnt all that surprised by what company

president Michael Otto and CFO James Wilson had to say during their meeting that morning.

Last year, launching a major expansion made sense to everyone at Puget, a well-established company that provided building materials, as well as manufacturing and installation services, to residential builders in the Washington and Oregon markets. Puget looked at the record new housing starts and decided that it was time to move into the California and Arizona markets, especially concentrating on San Diego and Phoenix, two of the hottest housing markets in the country. Federico carefully hired promising new sales representatives and offered them hefty bonuses if they reached the goals set for the new territory over the following 12 months. All the representatives had performed well, and three of them had exceeded Pugets goaland then some. The incentive system hed put in place had worked well. The sales reps were expecting handsome bonuses for their hard work.

Early on, however, it became all too clear that Puget had seriously underestimated the time that it would take them to build new business relationships and the costs

associated with the expansion, a mistake that was already eating into profit margins. Even more distressing were the most recent figures for new housing starts, which were heading in the wrong direction. As Michael said, Granted, its too early to tell if this is just a pause or the start of a real long-term downturn. But Im worried. If things get worse, Puget could be in real trouble. James looked at Federico and said, Our lawyers built enough contingency clauses into the sales reps contracts that were not really obligated to pay those bonuses you promised. What would you think about not paying them?

Federico turned to the president, who said, Why dont you think about it, and get back to us with a recommendation? Federico felt torn. On the one hand, he knew that the CFO was correct. Puget wasnt, strictly speaking, under any legal obligation to pay out the bonuses, and the eroding profit margins were a genuine cause for concern. The president clearly did not want to pay the bonuses. But Federico

had created a first-rate sales force that had done exactly what hed asked them to do. He prided himself on being a man of his wordsomeone others could trust. Could he go back on his promises?

Please attempt ALL the following 3 options for The Answer with pros & cons (advantages & disadvantages) and discuss in detail

1. Recommend to the president that a meeting be arranged with the sales representatives entitled to a bonus and tell them that their checks were going to be delayed until Pugets financial picture clarified. The sales reps would be told that the company had a legal right to delay payment and that it may not be able to pay the bonuses if its financial situation continues to deteriorate.
2. Recommend a meeting with the sales representatives entitled to a bonus and tell them that the companys deteriorating financial situation triggers one of the contingency clauses in their contract, so the company wont be issuing their bonus checks. Puget will just have to deal with the negative impact on sales rep motivation.
3. Recommend strongly to the president that Puget pay the bonuses as promised. The legal contracts and financial situation dont matter. Be prepared to resign if the bonuses are not paid as you promised. Your word and a motivated sales team mean everything to you.