The New York Times Recently Reported That a Number of Publicly-Held

question 27

Essay

The New York Times recently reported that a number of publicly-held corporations have been accused of illegally doctoring hourly employees' time records. Examples included:
? Workers sued Family Dollar and Pep Boys, accusing managers of deleting hours from their time records.
? More than a dozen former Walmart employees said in interviews and depositions that managers had altered time records to shortchange employees.
? The Department of Labor reached two back-pay settlements with Kinko's photocopy centers after finding that managers had erased time for 13 employees.
When interviewed, many of the managers cited pressure from upper-management and the impact of their actions on their own compensation as underlying causes for their actions. All of the companies strongly denied encouraging such illegal and unethical behavior by managers. Compensation experts interviewed agreed that the companies' incentive performance systems may have contributed to the managers' behavior. , (New York Times, April 4, 2004)
a. Explain how the incentive performance systems of the above-named companies could have contributed to this illegal behavior by managers.
b. Discuss the ethical issues involved in the design of incentive performance systems. In designing a performance-based incentive system, what measures should companies take to avoid illegal and unethical behavior by supervisors?

---

Definitions:

Income From Operations

Also known as operating income, it reflects the revenue from a company's principal business activities minus its direct operating expenses (excluding non-operating income and expenses).

Other Revenues and Gains

Income from activities not related to a company's primary business operations.

Primary Source of Revenue

The main activity or operation that generates the majority of a company's income.

Wholesaler

A person or company that buys goods in large quantities from manufacturers and sells them in smaller amounts to retailers or professional users.