Managerial Accouting

Corona is a privately held highend luxury retailer that operates stores in the wealthiest cities and suburbs in the United States. The corporate headquarters is located in New York City. The company has a long history of profitability and a strong national image as the pinnacle of luxury. However, in the past two years Corona's profitability has begun to drop off and many of the top executives fear that the company's most important asset, its brand image, might come into jeopardy if it cannot regain its past profitability. Bernard Starnes, Corona's long-time CEO, wonders if the company's aged compensation plan might be at least partially responsible for Corona's tough times. He remembers a time when the company was rapidly expanding by creating several new divisions and aggressively promoting its brand image. It seemed like he was attending a new store opening every week. During those times divisional managers worked hard for their bonuses. It was almost as if there was a competition between divisions as to which could beat their sales plans by the widest margin because that would mean the largest bonuses. This was due to the fact that a significant portion of the managers' compensation was tied to their bonuses. Now the company is not expanding as rapidly and its focus has shifted to promoting current products and growing same-store sales. Furthermore, Mr. Starnes has noticed several troubling trends within the company. First, he has noticed a steady decline in cross-divisional cooperation and coordination. Second, there have been several recent occasions where Mr. Starnes had to become personally involved in situations where divisional managers were making decisions that were beneficial to their individual divisions but not strategically aligned with the firm as a whole. Finally, management turnover is becoming somewhat of a problem, especially right after bonuses are awarded at the end of each fiscal year