1. 1. Recommend to the president that a meeting be arranged with the sales representatives entitled to a bonus and tell them that their checks were going to be delayed until the Puget’s financial picture clarified.

The sales reps would be told that the company had a legal right to delay payment and that it may not be able to pay the bonuses if its financial situation continues to deteriorate. Federico Garcia, vice president of sales for Puget Sound Building Materials, a company based in Tacoma, Washington, wasn’t all that surprised by what company president Michael Otto and CFO James Wilson had to say during their meeting that morning.

Last year, launching a major expansion made sense to everyone at Puget, a well-established company that provided building materials as well as manufacturing and installation services to residential builders in the Washington and Oregon markets. Puget looked at the record new housing starts and decided it was time to move into the California and Arizona markets, especially concentrating on San Diego and Phoenix, two of the hottest housing markets in the country. Federico carefully hired promising new sales representatives and offered them hefty bonuses if they reached the goals set for the new territory over the following 12 months. All of the representatives had performed well, and three of them had exceeded Puget’s goal—and then some. The incentive system he’d put in place had worked well. The sales reps were expecting handsome bonuses for their hard work.