Boxall and Purcell chapter 2 Case study 2.1: What to do with Jonathan? hompa is a large conglomerate with 20 companies in the group. Its corporate g groups board ar gue have very generous base salaries as well as highly valuable share options. The have been justified at AGMs on the basis that (a) they help to align executive interests, and (b) almost everyone else has them. consists largely of executive directors whom sharemarket watchdo Vi price has certainly improved over the last 5 years - by some ritics of the share option scheme are undeterred. They say the whole The com pany's share in market has risen and while the board may be competent, there is no evidence that it is outstanding. The debate rages on. What shareholder watchdog groups do not know is exactly how executives further down the corporate tree are assessed and remunerated. While ce is deemed good, a small number of business unit chief executives are under-performers. In one of the group companies, a merchant banking organisation, the CEO- Jonathan-has a high base salary and a generous allocation of share options in the group, making him potentially very wealthy. This scheme was Set up 4 years ago. Jonathan, an old school-friend of the group's chairman, was hired from outside the group. Unfortunately, it has become apparent that the banking business unit has dropped from average to bottom quartile performance in its industry segment in that timeframe. Initial performance reviews conducted by the group CEO with Jonathan involved approvals of several cost-efficiency strategies designed to cope better with a market that Jonathan said was driven by margin-based competition. In the last year, it has become apparent that while the bank's cost structure has been re-shaped, profitable growth opportunities have been missed. An independent industry-analysis of the bank commissioned by the group's head-office strategic planning unit, and then debated at the corporate board, argues that the bank is neither innovative nor a fast follower in a market environment where it needs to be one or the other to survive In his last annual review of business performance with Jonathan, the group CEO asked for his assessment of rising managerial stars in the bank. Unfortunately, it seems that nearly all key staff below the CEO level in the bank have been headhunted by compe senior management team have all left to join competitors in the indust reports are now all young experience. His manag tone. There is v bank's strategic direction. titors in the last two years. The most experienced members of Jonathan's ry. His direct newly promoted statt with no prior senior management ement team meetings are brief and almost administrative in ery little challenging of his views and little time is spent discussing the The group CEO and the corporate board are now wondering what to do about Jonathan and seek your advice. The questions 1. Was it a good idea for Jo group? Wh for business unit CEOs this nathan's remuneration to include share options in the Tor business unitChre is a demand for some kind of performance incentive in this kind of group, what would you recommend and why? 2. What sort of difficulties can arise in strategic managkely account debate in a senior management team? In this case, what tegic management when there is little low level of strategic debate in Jonathan's team? What lessonsw this? 3. How should the corporate bo ard manage Jonathan at this point in time? Given his performance in the strategic management process and the fact that the most critical appointment in any company is that of the CEO, identify the relative merits of: a) dismissal of Jonathan and immediate search for a new CEO retention of Jonathan but reformulation of his objectives and remuneration package, and an agreement with him on a suitable external consultant to immediately begin facilitation of better teamwork in his senior management team. Boxall and Purcell chapter 2 Case study 2.1: What to do with Jonathan? hompa is a large conglomerate with 20 companies in the group. Its corporate g groups board ar gue have very generous base salaries as well as highly valuable share options. The have been justified at AGMs on the basis that (a) they help to align executive interests, and (b) almost everyone else has them. consists largely of executive directors whom sharemarket watchdo Vi price has certainly improved over the last 5 years - by some ritics of the share option scheme are undeterred. They say the whole The com pany's share in market has risen and while the board may be competent, there is no evidence that it is outstanding. The debate rages on. What shareholder watchdog groups do not know is exactly how executives further down the corporate tree are assessed and remunerated. While ce is deemed good, a small number of business unit chief executives are under-performers. In one of the group companies, a merchant banking organisation, the CEO- Jonathan-has a high base salary and a generous allocation of share options in the group, making him potentially very wealthy. This scheme was Set up 4 years ago. Jonathan, an old school-friend of the group's chairman, was hired from outside the group. Unfortunately, it has become apparent that the banking business unit has dropped from average to bottom quartile performance in its industry segment in that timeframe. Initial performance reviews conducted by the group CEO with Jonathan involved approvals of several cost-efficiency strategies designed to cope better with a market that Jonathan said was driven by margin-based competition. In the last year, it has become apparent that while the bank's cost structure has been re-shaped, profitable growth opportunities have been missed. An independent industry-analysis of the bank commissioned by the group's head-office strategic planning unit, and then debated at the corporate board, argues that the bank is neither innovative nor a fast follower in a market environment where it needs to be one or the other to survive In his last annual review of business performance with Jonathan, the group CEO asked for his assessment of rising managerial stars in the bank. Unfortunately, it seems that nearly all key staff below the CEO level in the bank have been headhunted by compe senior management team have all left to join competitors in the indust reports are now all young experience. His manag tone. There is v bank's strategic direction. titors in the last two years. The most experienced members of Jonathan's ry. His direct newly promoted statt with no prior senior management ement team meetings are brief and almost administrative in ery little challenging of his views and little time is spent discussing the The group CEO and the corporate board are now wondering what to do about Jonathan and seek your advice. The questions 1. Was it a good idea for Jo group? Wh for business unit CEOs this nathan's remuneration to include share options in the Tor business unitChre is a demand for some kind of performance incentive in this kind of group, what would you recommend and why? 2. What sort of difficulties can arise in strategic managkely account debate in a senior management team? In this case, what tegic management when there is little low level of strategic debate in Jonathan's team? What lessonsw this? 3. How should the corporate bo ard manage Jonathan at this point in time? Given his performance in the strategic management process and the fact that the most critical appointment in any company is that of the CEO, identify the relative merits of: a) dismissal of Jonathan and immediate search for a new CEO retention of Jonathan but reformulation of his objectives and remuneration package, and an agreement with him on a suitable external consultant to immediately begin facilitation of better teamwork in his senior management team