In the early 1980s, Bernard Hancock built a small brewery on his 150-acre property in the Macedon Ranges. The brewery, named Mountain Mist Brewery, was designed with ales in mind and Bernard introduced a number of cutting-edge and innovative technologies to make the well-known, popular pale ale Misty Hop and others such as Hazy Heidi, Mountain Maid and Sunny Sherpa. The brewery's highest selling pale ale (Misty Hop) is widely recognised as a high-quality boutique beer and is sold, along with the brewery's other ales, to clubs and restaurants around Australia. All Mountain Mist Brewery ales are distributed in kegs (large containers) and 12-bottle cartons through its Victorian and national wholesalers. The brewery has continued to expand capacity on its site to meet growing consumer demands.

Bernard's vision for Mountain Mist Brewery is to:

• grow profitably with incremental investment into selected markets to become one of the top six
• breweries in Australia
• continuously improve perceived consumer quality by improving taste, freshness, package
• integrity and package appearance
• enhance distributor service with better lead times, accurate order fills and lower product damage
• continuously lower company costs per litre of beer so Mountain Mist can maintain resources for
• long-term productivity and success
• continuously improve business performance through engaging and developing employees.

Given recent sound performance, Bernard is pleased he had made the decision to expand Mountain Mist's production interstate. This decision was made in line with Bernard's key objective to be one of the top six national competitors. Mountain Mist currently holds seventh position. With its nearest competitor, Little Creatures, expanding into the eastern market from its Western Australian base, Bernard wants to ensure Mountain Mist will not only maintain market share but grow in size to take Little Creatures' sixth position. Bernard wants to improve Mountain Mist's brand presence in the western region, as well as reduce the transportation costs of moving beer across Australia. A local presence in Western Australia would also help reduce reliance on national retail distribution channels.

A production site has been selected. A production manager from the Macedon Ranges site has been given the role of overseeing the operational set-up and staying on to manage the new operation. Others, such as microbiologists from the Mountain Mist laboratory, have also been offered the opportunity to move interstate. Thus, Bernard is moving some expertise from the Macedon Ranges and employing more staff at both sites to meet the new staffing requirements. As well as wanting a smooth manufacturing set-up, Bernard argues that it is vital for the Mountain Mist beer to be 100 per cent comparable between manufacturing sites. For Bernard, there are many issues still to contend with in relation to sourcing raw materials.

Bernard also needs to employ a manager to oversee the sales side of the Western Australia venture. He has offered the role of Western Australia Sales Manager to Matt Jerome. Matt is in his late 20s and had been working for Mountain Mist for about four years in the administration area as an accounts clerk. He has recently spent time on the administrative side of the new Western Australian operations. Bernard is pleased with Matt's work and knows he is keen to move from administration and account keeping into managing sales at the new facility. While he has not had any previous sales experience, Bernard is keen to offer Matt this personal development opportunity.

Matt's salary comprised a base salary and an incentive-based on sales performance. While Mountain Mist had the corporate balanced scorecard (described earlier), they did not link scorecard results to their sales managers' incentive plans. Bernard was concerned that the balanced scorecard measures would not drive the innovation and risk he required of his sales team. For example, Bernard wanted his sales team to continue to have the flexibility to make last minute changes if their customers required. He thought if they were influenced by rigid balanced scorecard performance measures, they might, in fact, be demotivated. He was also worried that they would work to the measure rather than profit maximisation through meeting customers' unique, changeable and often immediate needs. Thus, Matt was able to earn a bonus based on the sales generated in the Western Australian region. Matt was also given the autonomy to hire his own sales and administration staff to help manage this new sales division. In addition, Bernard left Matt responsible for overseeing both sales and bookkeeping roles. After all, Matt had excelled at his administrative role in the past.

Bernard has contemplated varying remuneration options for Matt. Although Matt will have assets under his control, Bernard decides to reward Matt based on the following incentive structure:

• base salary $120 000 per annum
• individual bonus based on the Western Australian division's EBIT (capped at $50000
• per annum)
• corporate bonus based on Mountain Mist's corporate performance (2 per cent share of 'above
• budget' corporate profit pool)
• other 50 per cent of private health insurance cost, relocation expenses for Matt's family.
• Matt has moved his family from the Macedon Ranges to Western Australia and begun to promote Mountain Mist Brewery. The aim is to have manufacturing operations and sales in place for summer.
• Required

(a) Discuss the benefits and limitations of Matt's incentive scheme proposed by Bernard.

(b) It is mentioned in the case that Matt has assets under his control. What performance measure- ment alternatives could Bernard have used? How might they improve (or otherwise) on the scheme proposed by Bernard?