Enron, once one of the fastest growing, innovative, and well managed business in the United States filed bankruptcy in December 2001. Shareholders, including Enron employees lost billions of dollars. The main question in everyone’s mind, is what truly happened to Enron? One act of Enron that contributed to the collapse was the Performance Bonus’s that were given to employees.
Enron was a company that knew exactly what they wanted, and how to achieve every goal. The company needed strong, outgoing, ruthless individuals, who would stop at nothing to get what he/she wanted. Enron implemented a “rank and yank’ employee evaluation system where employees ranked each other from 1 to 5 on their contribution toward the company. Each division was required to rank 20 percent of their employees at the lowest ranking. Employees were quick to rank others less favorable in order to increase their own standings (Fowler, 2002). Kenneth Lay, CEO, was said to have made a point on the ethical codes of Enron, and how it was important to him to achieve the highest quality of ethics and at the same time supporting all people!
Enron decided to carry out a bonus system. This was a system that an employee would receive a bonus when a contract was signed, not completed! So, even if the contract was faulty or unethical if it was signed the employee received a large bonus; normally a 3% bonus on the price of the contract. This appeared to boost the moral of Enron, but the performance bonus’s started to get out of hand. Employees were inflating prices on contracts, because the larger the cost of the contract the more money went into his/her pocket. Ken Lay, CEO, was happy about the money being brought in and the strive the employees had to complete tasks in a timely manner. Employees at Enron were vicious, and would go to excessive lengths to get what he/she was hoping for. The main focus at all times was money. The performance bonus for Enron was as follows, “Employee shall be...
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