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CSA Industries: Financial Reporting

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2. CSA set itself up to have problems. CSA had a divisional form of organization. The environment and culture has developed from the practice where each division was left on its own until it achieves the "gradual growth" targets. If there was any negative variation from the target, the headquarters would ask questions, interfere in the working of the division and make things difficult for that division. So, the culture that developed was one where sticking to the operating profit targets was of utmost importance. The second most important reason for the problems was that the CSA offered its management a base salary that was below that of its competitors and relied on a management incentive program to retain its key personnel. The management incentive program offered annual cash awards based on actual vs. budgeted level of ROA achieved by the entity to which the individual was assigned. The level of ROA set was unreasonably high. Pressures were created to achieve those targets. Even though the payouts were good this system created a ...

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