Lance Amato, CFO for Mills Paper Company, sat at his desk dreading the upcoming meetingwith John Carpenter, a general accountant with the company. He was going to notifyCarpenter of his termination from the company. Although it was going to be a difficult meeting, Amato felt the company had no choice and had done everything possible to assist Carpenter in meeting the performance expectations that had been set for him. As he satwaiting for the meeting to begin, Amato reviewed Carpenter's performance record and history at Mills.

Carpenter had been hired by Mills Paper Company two years earlier. At the time, he was56 years old and had come to Mills with considerable experience. When hired, Carpentersigned a written performance agreement, a patent and confidentiality agreement, and astandard ethics letter. Mills used a management by objectives performance appraisal systemfor its managerial staff. The expectations and objectives of positions were put into a perform-ance agreement annually. Within one week of employment, Carpenter and his supervisor at the time, Henry Castagnera, had agreed upon the objectives and performance metrics for Carpenter's position. Carpenter signed the MBO agreement.

Carpenter's tenure at Mills Paper was marred by a number of poor performanceappraisals and demotions. In the first quarter after he started work, Carpenter received apoor performance rating from his direct supervisor. At the time, several managers, includingthe president of Mills, expressed their disappointment and concern about Carpenter'sperformance as division controller (see Exhibit 3.5). However, the files indicated that despitethe poor performance rating, Carpenter received a seven percent salary increase the first yearof his employment.

Due to the reorganization of the company shortly thereafter, Carpenter was assigned to adifferent division and supervisor. His new supervisor, Bob Crane, had prepared a set ofobjectives for Carpenter. During a mid-year review, Crane rated his performance as ''needsimprovement.'' The review he submitted contained substantive comments to support therating (see Exhibit 3.6). As part of the improvement plan Crane developed for Carpenter, itwas agreed that his performance would be reviewed again in three months. Crane had notedthe following in Carpenter's personnel file at that time, ''There has not been positive action inorder to improve, and in some areas we have even lost ground.''

EXHIBIT 3.5 Comments from John Carpenter's Performance Appraisal

• Information furnished not consistently accurate
• Poor supervision of direct reports
• Accounting information not submitted on time
• Managers not satisfied with the financial guidance provided
• Paucity of key financial information available concerning manufacturing operations
• Slow response to requests for information

EXHIBIT 3.6 Excerpts from Performance Appraisal Conducted by Bob Crane

• Lack of solid response and follow through on specific requests for assistance
• Organization concerning financial aspects of strategy preparation and budgeting was not good
• No solid proposals given on how to improve the effectiveness of the accounting department
• Managers not satisfied with responses and state they were ''wishy-washy''
• Very little improvement around routine reporting
• No initiative in putting together a better financial forecasting form

Crane made further suggestions for Carpenter's improvement that included meeting withgeneral managers at Mills to help him understand their needs. He also charged Carpenter withdeveloping and issuing a new forecasting form for use in the division. When Carpenter didnot meet performance expectations, he was demoted by Crane to financial analyst with achange in title, reduced grade and responsibilities, but remained at the same pay. Once again,Carpenter was told his performance needed to improve.

Subsequent papers in the file showed Carpenter's performance did not improve or everreach the level expected of someone with his background and skill. In a last ditch effort tomanage Carpenter, Amato had given him the option of being demoted to a general accountantor being terminated for inability to perform his job. Carpenter chose to accept the seconddemotion with decrease in salary from $65,000 to $61,000. A set of performance objectiveswere developed for Carpenter in his new position. However, after two months it was clear that Carpenter was not able to meet the minimal targets that had been set for him. His financialreports continued to be of poor quality and were inaccurate. Finally, the decision was made toterminate Carpenter. As Amato reviewed Carpenter's file and the performance reviews, Amato wondered why they had not dismissed him earlier.

Amato looked up when he heard a knock on his door. It was Carpenter. After a ratherformal greeting, he told Carpenter he was terminated for poor performance and would receive21-weeks severance pay, payment for unused vacation time, and could also use the company'soutplacement services. Carpenter reacted first with shock and then anger. He slammed thedoor as he left Amato's office. Two months later, Mills Paper Company was notified thatCarpenter had filed a complaint with the local EEOC Office alleging age discrimination, unfair performance appraisal, and negligent and intentional infliction of emotional distress.

a. In the case of the 56-year-old Carpenter's performance appraisal, what did Carpenter's supervisors do correctly in terms of applying the MBO for his performance?

b. What should those supervisors have done differently? Why so?