Indigo Berhad is a large and successful producer of supercars. The company consists of two divisions: the Red-Line division and the Blue-Line division. Indigo has recently acquired a company which will become a third division. The new Black division is a small producer of accessories. It has been owned and managed by the same person for 35 years. The prior owner treated all employees as part of his family. The company was noted for the lack of a them and us attitude between employees and management, and there was free and open communication between all staff. Unfortunately, Black division is not a strong performer: the accessories market is in decline and profits have slipped.

Indigo Berhad is a large and successful producer of supercars. The company consists of two divisions: the Red-Line division and the Blue-Line division. Indigo has recently acquired a company which will become a third division. The new Black division is a small producer of accessories. It has been owned and managed by the same person for 35 years. The prior owner treated all employees as part of his family. The company was noted for the lack of a them and us attitude between employees and management, and there was free and open communication between all staff. Unfortunately, Black division is not a strong performer: the accessories market is in decline and profits have slipped.

The profit results for the first financial year following the acquisition of the Black division are provided below:

Red-Line (RM)	Blue-Line (RM)	Black (RM)
Sales revenue	47,400,000	63,000,000	14,250,000
Cost of goods sold	15,000,000	36,000,000	6,750,000
Gross margin	32,400,000	27,000,000	7,500,000
Administrative costs	17,700,000	11,100,000	5,400,000
Marketing and selling costs	11,100,000	9,300,000	1,800,000
Total costs	28,800,000	20,400,000	7,200,000
Profit before interest and taxes	3,600,000	6,600,000	300,000

Senior management salaries included in the above costs, and divisional assets at the end of that year, are as follows:

	Red-Line (RM)	Blue-Line (RM)	Black (RM)
Senior management salaries	4,000,000	2,800,000	1,400,000
Divisional assets	8,000,000	8,000,000	1,600,000

Prior to the acquisition by Indigo, all Black division employees, including the senior managers, participated in a gainsharing program. Under this program, the financial impact of improvements in labour productivity and delivery performance were quantified each quarter, and 50 percent of this amount was accumulated in a pool. At the end of each year, each employee received an equal share of the pool. The scheme was discontinued when Indigo purchased Black division.

Required:

1. Which division has the best performance in terms of profit and return on investment (ROI) in the first year after the acquisition?

2. Determine the bonus pool available for that year, and calculate the percentage of bonus that each senior manager would receive.

3. Discuss the behavioural problems that could arise among the senior managers of the Red-Line and Blue-Line divisions as a result of the bonuses.

4. Discuss the behavioural problems that may arise within the Black division from the changes in the performance-related pay system.