LasFerreteriasdeMexico

Case Summary:

This case describes some of the basic problems with the return on investment (ROI) measure of performance. The problems arise in both the numerator (profit) and denominator (investment) of the ROI measures. The case also allows for consideration of some other issues that managers face in the design and implementation of incentive systems. These include decisions about what employees to include in the plan, what target bonus to set for each type of employee included, whether to use a bonus pool feature, how to design the function linking performance measures and incentive awards, and how to set fair performance standards for all employees.

Case Questions:

1. Evaluate the proposed bonus plan that Mr. Gonzalez is considering.
2. How, if at all, would you modify the proposed plan?