Accounting - Berkshire Industries Plc

Executive Summary

Berkshire Industries PLC is a decentralized-structure company, founded in 1852 as a brewery serving local pubs. Recently, there’s an evolution in the company’s performance measurement system. The main motivation urging for a change derived from two reasons: i) Poor correlation between firm’s performance and shareholder’s benefit, ii) Inefficiency in the old system induced by subjectivity. In this paper we evaluate the economic profit-evaluation system adopted by the Berkshire from three different aspects, congruence, clarity, and completeness. We conclude that the system has achieved better concurrency, poor clarity and moderate completeness. However, there are a few deficiencies remained in the system which need further improvement. Moreover, after analyzing the issue, we discover that there are trade off between certain aspects. To conclude, we don’t think there’s a perfect system, the managers would need to valutate which element outweighs the other one to design a better measurement system.

Company’s overview

Berkshire Industries PLC was founded in 1852 as a brewery serving local pubs. Berkshire had four operating divisions: beer, spirits, soft drinks, and snack food. It was a decentralized company, where each division had considerable autonomy and was primarily responsible for their earnings. By 2002, it went internationally and became a medium sized public company. Since it went public, the primary performance measurement was focusing on earnings per share (EPS); however, this EPS measurement was associated with some concerns such as shareholders not benefiting from EPS improving and too much subjectivity on the performance evaluation and reward system. At the request of the Board, William Embleton began to look for a new performance measurement system and incentive system, he provide an “economic profit” measurement, which was proposed