Wonkies, Inc. is a large company that owns fast-food restaurants, has a soft drink division, and a snack division. Wonkies, Inc. corporate management gives its division managers considerable operating and investment autonomy in running their divisions. Wonkies, Inc. is considering how it should compensate Mark Hamm, the general manager of the snack division. ■ Proposal 1 calls for paying Hamm a fixed salary. ■ Proposal 2 calls for paying Hamm no salary and compensating him only on the basis of the division’s RI, calculated based on operating income before any bonus payments. ■ Proposal 3 calls for paying Hamm some salary and some bonus based on RI. Q. Evaluate the three proposals, specifying the advantages and disadvantages of each.
Wonkies, Inc. is a large company that owns fast-food restaurants, has a soft drink division, and a snack division. Wonkies, Inc. corporate management gives its division managers considerable operating and investment autonomy in running their divisions. Wonkies, Inc. is considering how it should compensate Mark Hamm, the general manager of the snack division.
■ Proposal 1 calls for paying Hamm a fixed salary.
■ Proposal 2 calls for paying Hamm no salary and compensating him only on the basis of the division’s RI, calculated based on operating income before any bonus payments.
■ Proposal 3 calls for paying Hamm some salary and some bonus based on RI.
Q. Evaluate the three proposals, specifying the advantages and disadvantages of each.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
