The Cosmetic Division of Persona Company is facing stiff competition from local and overseas competitors. Its operating profit has been declining steadily for the past several years. The division has been forced to lower prices so as to maintain its market share. The operating results for the past three periods are given below.

Period 1 Period 2 Period 3

Sales revenue $10,000,000 $9,500,000 $9,000,000

Operating income $1,200,000 $1,045,000 $945,000

Average assets $15,000,000 $15,000,000 $15,000,000

In period 4 the division plans to install a JIT purchasing and production system. The initiative would reduce the average operating assets by 20% compared to period 3. Further, it is estimated that the sales and operating expenses for period 4 will be restored to period 1 levels. The company has a cost of capital of 8% per annum. Return on Investment (ROI) is calculated based on average assets.

1. Discuss FOUR behavioural issues that will result if the companys senior management insists on using ROI, rather than residual income, to assess the divisional performance and reward staff.