The Best Laid Incentive Plans
The Best Laid Incentive Plans
In the case, “The Best Laid Incentive Plans”, the Chief Financial Officer of Rainbarrel Products, Hiram Phillips, makes a lot of changes in the companys infrastructure. While the numbers looked good on paper, there were a lot of thing going on that Hiram didnt know about that were detrimental to the company as a whole. Using the broad approach of Corporate Governance and Narrow focus of the Contemporary Approach to Strategic Control, the case, “The Best Laid Incentive Plans”, will be broken down in the following analysis.
The role of Corporate Governance in any company is to ensure that the managers are continually trying to increase shareholder value. This means that the managers need to be focused on efficiency instead of how fast they can earn a commission or a get a raise. At Rainbarrel Products, Keith Randall, the CEO is letting his company go lax concerning overall company growth. Upon the hiring of Hiram Phillips as Chief Financial Officer, the company went through many cost cutting changes that Hiram thought would be beneficial to the company in helping shape it back up. Among the changes were incentives to answer calls quickly because the employees would now be monitored, and on time shipments being made on time or someone would be made responsible. Hiram also simplified the sales incentive program by making it simple.
The corporate executive panel meets quarterly to discuss various areas of the company and to hear presentations from selected department heads such as Hiram. The company does well to involve many viewpoints during this meeting to gain an overall perspective as to how the company is really doing. They receive feedback from customer and employee surveys to keep up to date with valued customers opinions. The panel was exposed to the reality of what was going on in their company. The employees werent happy with the layoffs and the customers were not pleased with the customer service they were receiving as a result of Hirams new changes. The panel has seen that while the management had good intentions in making these changes, they were hurting the company as a whole by turning away customers with abrupt customer service, untimely shipment, and unresponsiveness to telephone calls and email.
The agency theory helps to resolve the two common problems that sometimes occur in agency relationships. Rainbarrel Products is struck with both problems. The CEOs and Board of Directors want what is best for the company, shareholders, and customers, and are not happy to find that their employees are not only unhappy, but are also neglecting their duties and letting their managers think that they have been done. The goal of the management is conflicting with the goals of the employees. When Hiram Phillips made the rule that the product could not be categorized as shipped until it was out the door, he expected that it was being shipped not sitting across the street. Their second problem coinciding with the agency theory is that there was no one to monitor the employees to make sure they were completing their duties efficiently and correctly. The employees are just making their hourly salary any way they possibly can whether it means happy customers or not. They do not have good incentive programs that make them want to perform and keep customers happy.