=+20-20 KK Financial and non-financial performance measures, goal congruence (CMA, adapted)

OBJECTIVES 1, 8 Fishy Ltd manufactures fishfinders and depthsounders for recreational fishing, a market that has become increasingly competitive.

Approximately two years ago, Jen Harris, CEO of Fishy Ltd, decided to revise the bonus plan (based, at the time, entirely on operating profit) to encourage division managers to focus on areas that were important to customers and that added value without increasing cost. In addition to a profitability incentive, the revised plan includes incentives for reduced rework costs, reduced sales returns and on-time deliveries. Bonuses are calculated and awarded semi-annually on the following basis: a base bonus is calculated at 3% of operating profit; this amount is then adjusted as follows:

a i reduced by excess of rework costs over and above 1% of operating profit ii no adjustment if rework costs are less than or equal to 1% of operating profit b i increased by $5000 if more than 99% of deliveries are on time, and by $2000 if 96% to 99% of deliveries are on time ii no adjustment if on-time deliveries are below 96%

c i increased by $4000 if sales returns are less than or equal to 1.5% of sales ii decreased by 50% of excess of sales returns over 1.5% of sales.

Note: If the calculation of the bonus results in a negative amount for a particular period, the manager simply receives no bonus, and the negative amount is not carried forward to the next period.

Results for Fishy’s Finder and Sounder Divisions for 2014, the first year under the new bonus plan, follow. In 2013, under the old bonus plan, the Finder Division manager earned a bonus of $27060 and the Sounder Division manager earned a bonus of $22440.

Finder Division Sounder Division 1 January 2014 to 30 June 2014 1 July 2014 to 31 December 2014 1 January 2014 to 30 June 2014 1 July 2014 to 31 December 2014 Revenues $4 500 000 $4 500 000 $2 950 000 $3 000 000 Operating profit $462 000 $440 000 $342 000 $406 000 On-time delivery 96.4% 98.3% 99.2% 95.6%

Rework costs $10 500 $10 000 $5 000 $7 000 Sales returns $83 000 $69 000 $43 750 $41 500 Required 1 Why did Jen Harris need to introduce these new performance measures? That is, why does she need to use these performance measures in addition to the operating profit numbers for the period?