Exam 20: Performance Measurement Systems Glossary Photo Credits

Which of the following statements about goal-setting theory is False?

Leading indicators of performance are always financial in nature.

Logically, a cause-and-effect relationship exists between improvements in organizational learning and growth and improvements in internal business and production processes.

Balanced scorecards do not work well in nonprofit environments because of their lack of financial performance measures.

Holloway Corporation estimates that a three percentage point increase in retained customers is estimated to cause the organization's gross margin ratio to increase by 2.4 percentage points. The company's current sales are $20,000,000 and the company is considering a $200,000 advertising campaign, which it estimates will increase the company's retained customers by 4 percentage points. Should the company continue with the advertising campaign?

Pay for performance incentive systems base at least some portion of a manager's income on measures of organizational performance rather than a guaranteed amount.

Which of the following is not an element that should be considered when designing an incentive system?

Which of the following is true about balanced scorecards?

Lagging indicators measure the final outcomes of management plans and their execution.

Absolute performance evaluation:

Ignoring the time value of money, what is the break-even benefit level per year? Joplin Corporation showed the following relationship between training costs and training benefits:

The New York Times recently reported that a number of publicly-held corporations have been accused of illegally doctoring hourly employees' time records. Examples included: ? Workers sued Family Dollar and Pep Boys, accusing managers of deleting hours from their time records. ? More than a dozen former Wal-Mart employees said in interviews and depositions that managers had altered time records to shortchange employees. ? The Department of Labor reached two back-pay settlements with Kinko's photocopy centers after finding that managers had erased time for 13 employees. When interviewed, many of the managers cited pressure from upper-management and the impact of their actions on their own compensation as underlying causes for their actions. All of the companies strongly denied encouraging such illegal and unethical behavior by managers. Compensation experts interviewed agreed that the companies' incentive performance systems may have contributed to the managers' behavior. (New York Times, April 4, 2004) Required: (a) Explain how the incentive performance systems of the above named companies could have contributed to this illegal behavior by managers. (b) Discuss the ethical issues involved in the design of incentive performance systems. In designing a performance-based incentive system, what measures should companies take to avoid illegal and unethical behavior by supervisors?

Which of the following would be a balanced scorecard measure in the financial performance area?

Market share can be measured in terms of dollar sales, unit volume, or number of customers.

Consider the following information pertaining to the balanced scorecard of a company: ● A 500-hour increase in job-related training will (a) increase the average employee education level by 1 point on a 100-point scale, (b) reduce cycle time by 0.8 hours, and (c) decrease defective products by 0.3% points. ● A one-point increase in the average education level (on a 100-point scale) will (d) decrease average cycle time by 0.5 hours and (e) decrease defective products by 0.1% points. ● A 1% decrease in defective products will (f) decrease average cycle time by 1 hour and (g) increase on-time deliveries by 0.2%. ● A one-hour decrease in average cycle time will (h) increase on-time deliveries by 0.1% points. ● A 1% point increase in on-time deliveries will (i) increase retained customers by 0.7% points. ● A 1% point increase in retained customers will (j) increase the gross margin ratio by 0.3% points. Required (a) Express the cause-effect relationships among the different indicators visually. (b) Would you expect the benefits of job related training to increase proportionately? For example, would you expect the benefit of 50,000 hours of job-related training to be 100 times the impact of 500 hours of training

Fred Doyle, assistant controller, was analyzing alternative ways of increasing gross margin of Somerset Corporation, a manufacturer of fashion clothing. He knew that the following relationship existed between the increase in the sales levels through retention of customers (dX) and the increase in gross margin (dY): dY = (0.60) * (dX) The marketing and department provided information about four different alternative plans of improving the retention rate of customers. Alternative 1 Improving quality will retain 20 customers who might have otherwise switched suppliers. Each retained customer will bring in sales revenues of $21,000 on average. The improvements in quality will come through two measures: switching to a substitute material that will cost $8,500 per customer, and purchasing an automatic inspection unit that will cost $80,000. Alternative 2 An increase in advertising will likely retain 12 customers at an average sales revenue of $25,000 per customer. Increased advertising will cost the company $200,000. Alternative 3 A price discount will retain 18 customers at an average sales revenue of $30,000 per customer. The discount offer will cost the company $240,000 in lost contribution margin. In addition, the company must spend $70,000 in advertising the sales discount promotion to customers. Alternative 4 The company has made improvements in the process which will improve its on-time delivery performance by 28% over the previous year. Consequently, it can retain 32 customers at an average sales revenue of $20,000 per customer. Improvements in the process cost the company cost the company as follows: (1) increase in labor costs $170,000, (2) increase in processing costs due to flexible processing technology $180,000, and (3) increase in miscellaneous costs $26,000. Required (a) Compute the cost-benefit of the four alternatives. (b) Which of the above alternatives would you recommend to the operations manager of the company? Why?

The financial performance section of a balanced scorecard would include a company's revenue growth.

Which of the following would not be a balanced scorecard measure in the business and production efficiency area?

Organizational learning and growth is a major lagging indicator of a company's performance.

Which of the following is not an accepted theory of motivation and incentives?