1. Evaluate the decision to use “minimum performance standard” (MPS) targets instead of “stretch” targets HCC has changed from ‘stretch’ performance targets to ‘minimum performance standards’. This was because the stretch targets didn’t work very well. The ‘stretch’ targets are doing a good job in companies that have a great understanding of their markets and that can influence the market. HCC however is too small to do marketing and market research, so it hasn’t enough information about their market. Because of that HCC wasn’t achieving any growth. The stretch targets didn’t perform well because only a couple of divisions reached their targets and so the company couldn’t grow, as it wanted to. An implication is that the people at corporate haven’t earned any bonuses and that is not increasing their motivation. A problem with the stretch targets is that they were quite optimistic, what implies that they were really tough to get. The result of this was that there came a culture where it was OK to miss your target. This was further encouraged because when people only reached 60% of their budget, they still got 80% of their bonus. This meant that employees didn’t have to worry about meeting budget. Another problem was that they were too subjective and complex to communicate to the middle managers. As also the communication of the details of the plan were hindered at 2 divisions because managers didn’t want to unveil financial information out of fear that it would be leaked to the competition. This implies that none of the personnel knew their bonus potential and didn’t know on what specific base the bonus was based on. Lastly, managers weren’t happy about the delay in payments that occurred when they reached their bonus. This is why HCC has changed its philosophy. HCC now asked to set ‘minimum performance standards’ to the managers. This minimum performance standard budgeting model (MPS) ought to bet set on a level that provides certainty of achievement....
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