Carol Rolfson is a divisional manager for Klinger Products. Carol operates a division that manufactures clocks and timepieces that are distributed through retail stores. Over the past year, Carol's division recorded the highest net income in the division's history. Internal records indicate that customer returns have declined significantly as a result of the division's improved quality. Many of the improvements were generated as a result of a vigorous program of enhanced technology in which most of the division's equipment was replaced or updated over the last 18 months.

Carol has noticed a change in morale as a result of the plant improvements. Employees have become more interested in their work and have suggested additional improvements to the production process. One of the suggestions led to a new product that has shown strong sales potential. The improved processes have also resulted in lower scrap rates and more timely shipments.

As a divisional manager, Carol is eligible for an annual bonus under Klinger's executive compensation plan. She has been notified, however, that her bonus for the year will be significantly less than in prior years. The executive compensation plan calculates a manager's effectiveness based solely on return on investment. The president of Klinger pointed out to Carol that while her division's income has improved, the addition of all the new equipment overshadowed the higher earnings.

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A. What weaknesses do you see in Klinger's executive bonus plan?

B. How does the company's current compensation plan differ from a balanced scorecard approach to bonus compensation?

C. If the company utilized a balanced scorecard approach, what do you believe would be the impact on Carol's bonus compensation? Explain your answer.