Profit-sharing plan at Hoechst Celanese Hoechst Celanese, a pharmaceutical manufacturer, has used a profit sharing plan, the Hoechst Celanese Performance Sharing Plan, to motivate employees. To operationalize the plan, the Hoechst Celanese executive committee set a target earnings from operations (EFO). This target was based on the company's business plans and the economy's expected performance. The performance sharing plan also used two other critical values: the earnings from operations threshold amount and the earnings from operations stretch target. The targets for a given year are shown here: $ millions Threshold Target Stretch Earnings from Operations $250 $320 $390 The plan operates as follows: If earnings from operations fall below the threshold value, there is no profit sharing. If earnings from operations lie between the threshold amount and the target, the profit-sharing percentage is prorated between the threshold award of 1% and the target payment of 4%. For example, if earnings from operations were $285 million, the profit-sharing percentage would be 2.50%: Profit-sharing percentage = 1% + ( 3% X[{ $285 - $250)/($320 - $2501]} = 2.50% (rounded to the nearest two decimals) Profit-sharing pool = 2.50% X $285,000,000 = $7.125,000 If earnings from operations are between the target and the stretch target, the profit-sharing percentage is prorated between the target payment of 4% and the stretch-sharing payment of 7%. For example, if earnings from operations were $350 million, the profit-sharing percentage would be 5.295, and the profit-sharing pool would be $18.52 million: Profit-sharing percentage = 4% {3% x [{ $350 - $320 / $390 - $320)]) = 5.2964 (rounded to the nearest two decimals) Profit-sharing pool = 5.29% X $350,000,000 = $18.515,000 If earnings from operations equal or exceed the stretch target level, the profit-sharing pool would be $27.3 million Profit-sharing pool - 7 X $390,000,000 - $27,300,000 (a) The EFO for a given year was $332 million. Compute the size of the profit-sharing pool. *Note: Round the profit-sharing percentage to two decimal points (i.e. show 14.445% as 14.45%) before further calculation. Profit-sharing percentage 0 Profit-sharing pool - $ 0 Be able to discuss the desirable and undesirable features of the Hoechst Celanese performance sharing plan (b) In the following year, the performance sharing plan parameters were: S millions Threshold Target Stretch Eamines from Operations 1420 490 550 Given the same level of EFO of $332, what is the size of the profit-sharing pool using these updated parameters. Be able to discuss the implications of raising the parameters from une year to the next. Profit-sharing pool = $ 0