We had been operating our company like a family, but maybe we're too big to operate that way. I think some of our people have gotten lazy, and our performance has suffered. That is why I asked for the design of a new incentive compensation plan. We need to be more competitive to survive. I want our people to focus on what they can do to improve company performance, and if we're successful, I am quite willing to share a good proportion of the proceeds of our success.
Questions
1. Evaluate the proposed performance measurement and incentive plan.
2. How, if at all, would you modify the proposed plan?
EXHIBIT 1

EXHIBIT 2
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LAS FERRETERÍAS DE MÉXICO, S.A. DE C.V. Income Statement as of 12/31/2002 (Ps 000) Net Sales Costs of Sales Gross Margin Selling, General and Administrative 2,216,540 1,582,670 633,870 Expenses Depreciation Expense Interest Expense Total Expenses Earnings before Taxes Income Tax Provision 377,580 65,740 14,320 457,640 176,230 58,240 117,990 Net Earnings after Taxes LAS FERRETERÍAS DE MEXICO, S.A. DE C.V. Balance Sheet as of 12/31/2002 (Ps 000) Assets Current Assets Cash and Cash Equivalents Short-Term Investments Accounts Receivable Merchandise Inventory 79,880 5,430 16,550 387,550 489,410 Property, less accumulated 857,650 8,720 14,060 1,369,840 depreciation Long-Term Investments Other Assets Total Assets Liabilities Accounts Payable Other Current Liabilities Long-Term Debt Other Long-Term Liabilities 211,260 57,860 384,350 67,140 720,610 Shareholders Equity Preferred Stock (510 par 300,000 shares issued) 30,000 Common Stock ($20 par 200,000 419,230 649,230 1,000,000 share issued) Retained Earnings Total Liabilities and Shareholders' Equity 1,369,840