Context HCC Industries is a small publicly owned company headquartered in California that has four divisions across the United States. Three divisions manufacture and sell hermetically sealed electronic connection devices of various types, while one, Hermetite, produces microelectronic packages. HCC’s divisions are very self-‐contained and independent. A general manager runs each division and is responsible for nearly all its functions. Additionally, a controller is employed to do the reporting for each division.
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HCC has improved the bonus scheme, in part because employees now know how the bonus system works. Beyond knowing their bonus potential, this allows for a better understanding of expectations and divisional ambitions for the year. Nonetheless, the bonus plan is still vague because COO Al Berger believes the importance of targets can vary over time. Corporate still exercises discretion and uses subjective means for the final bonus amount. As this is the first year of the new scheme, there are no historical figures to help managers figure out how corporate may influence the bonuses, leaving them and their teams very unsure about what they can reasonably expect in bonus compensation.
Moreover, the new bonus compensation scheme is made up in a way that will create budgetary gamesmanship behavior.