R&D Storage Is a Small,but Diversified,moving and Storage Company

question 56

Essay

R&D Storage is a small,but diversified,moving and storage company.In recent years,its profit has declined to unacceptable levels.To change the direction of the company,the board of directors hired a new chief executive officer.She is currently considering three alternative ways to reward division managers for performance.They are:
1.Give each manager a competitive salary with no bonus for performance.
2.Give each manager a base salary with the largest portion being a bonus based on performance,ROI being the yardstick.
3.Give each manager a base salary with a bonus based on comparative performance with the other divisions.
Required:
Evaluate each of the ideas,giving strengths and weaknesses.
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Definitions:

Accounts Payable

Liabilities reflecting money owed by a business to its suppliers or creditors for goods and services purchased on credit.

Creditor

An individual or institution that lends money or extends credit to another entity.

Interim Statements

Financial statements prepared for a period shorter than a financial year, typically quarterly or semi-annually, to provide a more immediate financial status of the company.

Insurance

A financial product that provides protection against financial losses from specified risks, such as accidents, theft, or natural disasters.