Question

SPG Company manufactures and sells metal products that are used in many manufacturing

operations. The management at SPG believes strongly in decentralized decision making and

using performance evaluation and compensation to encourage high-performing managers.

Marilyn Conners is the manager of the manufacturing operations, which produces and trans-

fers the product to the marketing division. Jack Schwartz is the manager of marketing. Mari-

lyn is evaluated on manufacturing cost relative to a budget for good output. Marilyn makes

all production decisions. Jack is evaluated on company profit relative to a target. If a manager

meets his or her target, they receive a bonus equal to 100 percent of salary.

Information on performance last year follows:

Manufacturing Cost Company Profit

Target cost per unit . . . . $2.37 Target profit . . . $10,000,000

Actual cost per unit . . . . 2.25 Actual profit . . .   9,232,000

Required

What recommendations would you suggest for changes to the SPG management control sys-

tem, if any? Discuss the delegation of decision authority, performance evaluation and mea-

surement, and compensation design in your response.

Answer 1