Pioneer Savings and Loan
Pioneer Savings and Loan
Late in the third quarter of 1994, the board of directors of Pioneer Savings and Loan of Orlando, Florida requested that their president, Herbert Jones, submit a recommendation on whether or not to grant branch managers a cash bonus that year. According to the company’s Management by Objectives (MBO) system, the granting of yearly bonuses was contingent upon the attainment of specific corporate profit objectives, in addition to the individual manager’s performance against pre-established MBO targets. Earnings in 1994 were targeted for a 15% increase over the 1993 profit. This 15% growth objective was established late in 1993 when management fully expected that Pioneer Savings could continue compounding the growth at a rate of 15% to 20% per annum it had achieved in the previous few years. But a variety of factors had conspired to hit Pioneer Savings’ bottom line hard in 1994. An active hurricane season had brought with it torrential rains, washing away millions of tourist dollars. Many locals had been forced to withdraw (rather than add to) savings to meet living expenses, which depleted Pioneer’s assets against which to make loans. Perhaps related to lower numbers of northern visitors was a mini-glut in housing, and the construction industry had slowed (albeit briefly) to a crawl. Finally, what house buyers there were seemed more and more to be arriving in Orlando with allegiances to their home northern financial institutions in tow, as several carpetbagging northern financial institutions (primarily a couple of North Carolina banks) made stronger and stronger inroads into the central Florida economy. The picture didn’t look so bad long-term, but the immediate future was not rosy.
Herbert Jones clearly knew that the 1994 MBO goals and profit objectives would not be met. He commented:
We did a bad job of picking objectives for 1994. We had been lulled to sleep by a fantastic growth rate and a good
Late in the third quarter of 1994, the board of directors of Pioneer Savings and Loan of Orlando, Florida requested that their president, Herbert Jones, submit a recommendation on whether or not to grant branch managers a cash bonus that year. According to the company’s Management by Objectives (MBO) system, the granting of yearly bonuses was contingent upon the attainment of specific corporate profit objectives, in addition to the individual manager’s performance against pre-established MBO targets. Earnings in 1994 were targeted for a 15% increase over the 1993 profit. This 15% growth objective was established late in 1993 when management fully expected that Pioneer Savings could continue compounding the growth at a rate of 15% to 20% per annum it had achieved in the previous few years. But a variety of factors had conspired to hit Pioneer Savings’ bottom line hard in 1994. An active hurricane season had brought with it torrential rains, washing away millions of tourist dollars. Many locals had been forced to withdraw (rather than add to) savings to meet living expenses, which depleted Pioneer’s assets against which to make loans. Perhaps related to lower numbers of northern visitors was a mini-glut in housing, and the construction industry had slowed (albeit briefly) to a crawl. Finally, what house buyers there were seemed more and more to be arriving in Orlando with allegiances to their home northern financial institutions in tow, as several carpetbagging northern financial institutions (primarily a couple of North Carolina banks) made stronger and stronger inroads into the central Florida economy. The picture didn’t look so bad long-term, but the immediate future was not rosy.
Herbert Jones clearly knew that the 1994 MBO goals and profit objectives would not be met. He commented:
We did a bad job of picking objectives for 1994. We had been lulled to sleep by a fantastic growth rate and a good