The best laid incentive plans case study answers

Case 4: The Best-Laid Incentive Plans* Hiram Phillips finished tying his bow tie and glanced in the mirror. Frowning, he tugged on the left side, then caught sight of his watch in the mirror. Time to get going. Moments later, he was down the stairs, whistling cheerfully and heading toward the coffeemaker. “You’re in a good mood,” his wife said, looking up from the newspaper and smiling. “What’s that tune? ‘Accentuate the Positive’?” “Well done!” Hiram called out. “You know, I do believe you’re picking up some pop culture in spite of yourself.” It was a running joke with them. She was a classically trained cellist and on the board of the local symphony. He was the one with the Sinatra and Bing Crosby albums and the taste for standards. “You’re getting better at naming that tune.” “Or else you’re getting better at whistling.” She looked over her reading glasses and met his eye. They let a beat pass before they said in unison: “Naaah.” Then, with a wink, Hiram shrugged on his trench coat, grabbed his travel mug, and went out the door. Fat and Happy It was true. Hiram Phillips, CFO and chief administrative officer of Rainbarrel Products, a diversified consumer-durables manufacturer, was in a particularly good mood. He was heading into a breakfast meeting that would bring nothing but good news. Sally Hamilton and Frank Ormondy from Felding & Company would no doubt already be at the office when he arrived and would have with them the all-important numbers—the statistics that would demonstrate the positive results of the performance management system he’d put in place a year ago. Hiram had already seen many of the figures in bits and pieces. He’d retained the consultants to establish baselines on the metrics he wanted to watch and had seen various interim reports from them since. But today’s meeting would be the impressive summation capping off a year’s worth of effort. Merging into the congestion of Route 45, he thought about the upbeat presentation he would spend the rest of the morning preparing for tomorrow’s meeting of the corporate executive council. It was obvious enough what his introduction should be. He would start at the beginning—or, anyway, his own beginning at Rainbarrel Products a year ago. At the time, the company had just come off a couple of awful quarters. It wasn’t alone. The sudden slowdown in consumer spending, after a decade-long boom, had taken the whole industry by surprise. But what had quickly become clear was that Rainbarrel was adjusting to the new reality far less rapidly than its biggest competitors. Keith Randall, CEO of Rainbarrel, was known for being an inspiring leader who focused on innovation. Even outside the industry, he had a name as a marketing visionary. But over the course of the ten-year economic boom, he had allowed his organization to become a little lax. Take corporate budgeting. Hiram still smiled when he recalled his first day of interviews with Rainbarrel’s executives. It immediately became obvious that the place had no budget integrity whatsoever. One unit head had said outright, “Look, none of us fights very hard at budget time, because after three or four months, nobody looks at the budget anyway.” Barely concealing his shock, Hiram asked how that could be; what did they look at, then? The answer was that they operated according to one simple rule: “If it’s a good idea, we say yes to it. If it’s a bad idea, we say no.” “And what happens,” Hiram had pressed, “when you run out of money halfway through the year?” The fellow rubbed his chin and took a moment to think before answering. “I guess we’ve always run out of good ideas before we’ve run out of money.” Unbelievable! “Fat and happy” was how Hiram characterized Rainbarrel in a conversation with the headhunter who had recruited him. Of course, he wouldn’t use those words in the CEC meeting. That would sound too disparaging. In fact, he’d quickly fallen in love with Rainbarrel and the opportunities it presented. Here was a company that had the potential for greatness but that was held back by a lack of discipline. It was like a racehorse that had the potential to be a Secretariat but lacked a structured training regimen. Or a Ferrari engine that needed the touch of an expert mechanic to get it back in trim. In other words, the only thing Rainbarrel was missing was what someone like Hiram Phillips could bring to the table. The allure was irresistible; this was the assignment that would define his career. And now, a year later, he was ready to declare a turnaround. Lean and Mean Sure enough, as Hiram steered toward the entrance to the parking garage, he saw Sally and Frank in a visitor parking space, pulling their bulky file bags out of the trunk of Sally’s sedan. He caught up to them at the security checkpoint in the lobby and took a heavy satchel from Sally’s hand. Moments later, they were at a conference table, each of them poring over a copy of the consultants’ spiral-bound report. “This is great,” Hiram said. “I can hand this out just as it is. But what I want to do while you’re here is to really nail down what the highlights are.