The Warehouse Sales Division is an autonomous unit of the Purity Steel Corporation, which is a steel produce, and operates 21 field warehouses throughout the United States. In 2012, the division sales, approximately $225 million, of which 50% are from steel products and the remaining 50% of sales was from copper, brass, and aluminum products. In 2011, Harold Higgins was selected as general manager of the Warehouse Sales Division. Higgins provided the total control of the operations division with responsibility for it to grow in terms of sales volume and return on investment (ROI). With his arrival, a decentralizing policy in which each branch manager was responsible for the activities of the division in their geographical area was implemented.
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The new compensation plan was fair with the distribution of monetary incentives to those branch managers who have high achievements in improving the activities of their respective areas. Thus, the plan was a combination of fixed salary plus monetary incentives respect to sales growth and return on investment. In the situational analysis, it has been reflected as the incentive scheme is defined in terms of ROI. The main advantage for Steel Purity use ROI as a performance measure is thus ensured that a decentralized policy, each branch performance basis depending on variables crucial to the company, such as the increase in securities sales monetary and profitability or return on investment. Managers were evaluated and encouraged with respect to these variables, therefore, its main objectives are focused in higher profits on their investments. Thus, each branch controlled costs incurred and tried to optimize them to achieve higher margins, prioritized achieve higher rates of sales (asset turnover) and performed investments that could ensure high levels of return. The Compensation Plan was composed of three components: Based Salary, Growth Incentive, and Return on Investment …show more content…
Therefore, the manager could improve their salary by increasing sales in terms of volume or in terms of margin (Net Profit / Sales). The third component of the plan is related to the asset turnover and return on sales, but comes into play by determining the volume of investment. For that matter, they are considered operating assets allocated to each branch (store) and fixed assets (buildings and equipment). In the best case, for the same ROI, more investment greatest benefit is obtained, and therefore, superior incentives for the manager. But there is a risk factor, so it was important for the director to achieve a return on their investments and ensure proportionality with the return for the same or higher rates of ROI, especially in large investments like buying a warehouse. With the Higgins’ compensation plan for branch managers were motivated to increase sales (higher turnover of assets) or margins, and also succeed in all investments profitable, generating a greater competitiveness in each branch. The main advantage for Steel Purity use ROI as a performance measure is ensured that each branch/division will focus on higher profits on their investments. Thus, each branch controlled costs incurred and tried to optimize them to achieve higher margins, prioritized achieve higher rates of sales and investments
The new compensation plan was fair with the distribution of monetary incentives to those branch managers who have high achievements in improving the activities of their respective areas. Thus, the plan was a combination of fixed salary plus monetary incentives respect to sales growth and return on investment. In the situational analysis, it has been reflected as the incentive scheme is defined in terms of ROI. The main advantage for Steel Purity use ROI as a performance measure is thus ensured that a decentralized policy, each branch performance basis depending on variables crucial to the company, such as the increase in securities sales monetary and profitability or return on investment. Managers were evaluated and encouraged with respect to these variables, therefore, its main objectives are focused in higher profits on their investments. Thus, each branch controlled costs incurred and tried to optimize them to achieve higher margins, prioritized achieve higher rates of sales (asset turnover) and performed investments that could ensure high levels of return. The Compensation Plan was composed of three components: Based Salary, Growth Incentive, and Return on Investment …show more content…
Therefore, the manager could improve their salary by increasing sales in terms of volume or in terms of margin (Net Profit / Sales). The third component of the plan is related to the asset turnover and return on sales, but comes into play by determining the volume of investment. For that matter, they are considered operating assets allocated to each branch (store) and fixed assets (buildings and equipment). In the best case, for the same ROI, more investment greatest benefit is obtained, and therefore, superior incentives for the manager. But there is a risk factor, so it was important for the director to achieve a return on their investments and ensure proportionality with the return for the same or higher rates of ROI, especially in large investments like buying a warehouse. With the Higgins’ compensation plan for branch managers were motivated to increase sales (higher turnover of assets) or margins, and also succeed in all investments profitable, generating a greater competitiveness in each branch. The main advantage for Steel Purity use ROI as a performance measure is ensured that each branch/division will focus on higher profits on their investments. Thus, each branch controlled costs incurred and tried to optimize them to achieve higher margins, prioritized achieve higher rates of sales and investments