Catalytic Solutions, Inc. (CSI) was founded in Santa Barbara, California, in 1996 by Steve Golden and Bill Anderson. Being a young company, CSI is still in a “pre-profit” stage of operation that is why its performance measurement and incentive systems are primarily based on nonfinancial. For the first few years, CSI had developed innovative catalytic converters to the automobile market, which are used to reduce the pollution caused by combustion engine. CSI owns a technology that allows it to produce better performance and cheaper catalytic converters than competitors did.
In 1999, they issued first patents to prevent the copy of its products and began the production to supply the auto industry after-market. Its sales were recorded once CSI started producing converters for stationary engines. These early sales proved that the technology was viable. In the same year, Honda Motor Company became the early original equipment (OE) adopter and it started evaluating CSI’s technology.
In early period, most CSI’s revenue was generated from sales in the auto industry after-market, whereby a $50 million market for converter replacements, then followed by getting new OE commitments. In 2000, it took an initial 10% stake in CSI. Then, Honda agreement signed with CSI while the production for Honda begins.
In 2001, General Electric (GE) & Cinergy invest Series C, which is one of the projects of catalytic converters, has financing $29.6 million. Furthermore, CSI’s managers also hoped to issue a public stock offering, but there was no pressure to rush the Initial Public Offerings (IPO) because it had adequate capital to fund its immediate product and process development and operating needs. Again, the cost of raising capital from private sources was not significantly higher than could be expected in a public stock offering.
In 2002, General Motors (GM) awarded production contract with CSI. However, CSI was assigned to a high-volume platform for GM scheduled to begin in 2004. At the same year, CSI also signed a strategic agreement with Ford to evaluate several high-volume platforms. Meanwhile, CSI was cooperating with most of the major automakers of the world. After that, CSI also received the Gratitude Award for Excellency in Research and Development by Honda Motor Company. This award proved that CSI’s product design had clearly won acceptance from the industry. Moreover, the QS-9000 quality certificate was awarded to CSI in early 2002. As noted that CSI would like to attract ambitious people to act as risk takers. Most people tend to work at CSI because they believed in its future success. They were highly committed and hard working by building strong team membership and cooperation, thus employee turnover was relatively low.
In 2003, major United States (US) production begins in CSI and first mass production line was being created. They realized that formalization in managerial structures and policies were necessary when preparing for mass production. Besides, non-financial performance indicators were mainly concerned since CSI managers believed that the initial focus on non-financial targets would translate into financial success.
Evaluation of CSI Current Compensation Systems
In order to control the employees’ behaviour and motivate them to achieve the organization’s objective, in 2001, CSI implements compensation systems which consist of three components which is base salaries, stock options, and annual bonus.
Base salaries can be said that is a way to attract and lead the employees to perform well in the operations of the company. In CSI, the company set the base salaries below the industries average. For this, it will lead to the control problem, lack of motivation, by which the employees may not put effort in their job and lack of commitment to increase the company performance. If, CSI...