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evaluation systems for managers

Discussion Question 1

The executive management team of your company has completed its annual evaluations of each division's performance using residual income measures. The division managers were ranked according to the residual income in each division. All division managers with residual income in the upper half of the ranking received a bonus. The bonus amount was proportional to the residual income amount. No bonuses were paid out to managers in the lower half of the ranking. Is this an effective evaluation system? What could be done to improve the system, if anything?

Discussion Question 2

Many companies use performance reports as a way of measuring productivity and controllability. However, some managers consider such reports as useless since nobody really controls anything in an organization. Is this a fair assessment? Can control be measured? Explain.

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Discussion Question 1

The executive management team of your company has completed its annual evaluations of each division's performance using residual income measures. The division managers were ranked according to the residual income in each division. All division managers with residual income in the upper half of the ranking received a bonus. The bonus amount was proportional to the residual income amount. No bonuses were paid out to managers in the lower half of the ranking. Is this an effective evaluation system? What could be done to improve the system, if anything?

Residual income refers to the after-tax profit less an ascribed interest charge for the opportunity cost of capital employed by the business. This indicator is taken into account for the annual evaluation of the managers and for determining the management bonuses.

This is an effective evaluation system to the extent that the system takes into account the profits earned by the division and the opportunity cost of capital. However, the practical ...

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