Ethics and Performance Measures for Compensation

Scenario:

The Eddison Electronics Company (EEC) owns a wide variety of manufacturing companies that make sophisticated electronic controls. You are EEC's corporate business financial analyst. Your responsibilities include the following:

Creating and analyzing the monthly performance of each company within EEC.
Providing and analyzing costing information for each company within EEC.
Analyzing the major capital projects submitted by each company.

EEC has introduced a new 1.5GB computer memory chip. The following is the plan and first-year results of the 1.5GB chip project and the financial activity for 2006.

The President of EEC has decided to adopt the Balanced Scorecard. You received an e-mail from him asking about tying compensation with performance measures.

Task:
Develop a memo in response to the President's questions in which you discuss unethical behavior that can result if the wrong performance measures are used to tie performance measures to compensation. How can EEC avoid these behaviors? How should EEC tie performance measures to compensation?

Solution Summary

The response gives a discussion on the issues of tying performance measures to compensation in terms of what is and is not ethical for the fictional EEC company. 1398 words with 4 references.