Individual Problems for another job despite the fact that there are 1-1 Goal Alignment at a Small Manufacturing 1,200 openings. Why not? Concem 1-5 Goal Alignment between Airlines and Flight The owners of a small manufacturing concern Crews have hired a vice president to run the company with the expectation that he will buy the com- Planes frequently push back from the gate on pany after five years. Compensation of the new time, but then wait 2 feet away from the gate vice president is a flat salary plus 75% of the until it is time to queue up for take-off. This first $150,000 profit, and then 10% of profit increases fuel consumption, and increases the over $150,000. Purchase price for the company time that passengers must sit in a cramped is set at 4.5 times earnings (profit), computed as plane awaiting take-off. Why does this happen? average annual profitability over the next five 1-6 Goal Alignment between Hospitals and the Brit- years. ish Government a. Plot the annual compensation of the vice president as a function of annual profit. In 2008, the Labour Party in Britain promised b. Assume the company will be worth $10 that patients would have to wait for no more million in five years. Plot the profit of buy- than four hours to be seen in an emergency ing the company as a function of annual room. The National Health Service started re- profit. warding hospitals that met this goal. What do you think happened? (HINT: It was not good.) 1-2 Goal Alignment at a Small Manufacturing Con- cern (cont.) Group Problems Does this contract align the incentives of the G1-1 Goal Alignment with Your Company new vice president with the profitability goals Are your incentives aligned with the goals of the owners? of your company? If not, identify a problem caused by goal misalignment. Suggest a change 1-3 Goal Alignment at a Small Manufacturing Concern (cont.) that would address the problem. Compute the profit consequences of the change. Redesign the contract to better align the incen- tives of the new vice president with the profit- G1-2 Contracts at Your Company ability goals of the owners. Identify a contract between your company and a supplier or customer. Does it align the incen- 1-4 Goal Alignment at New York City Schools tives of the parties? If not, suggest a change that A total of 1,800 New York City teachers who would address the problem. Compute the profit lost their jobs earlier this year have yet to apply consequences of the change