Adjustments for Uncontrollable Events at Hoffman Discount Drugs Inc.

Adjustments for Uncontrollable Events at Hoffman Discount Drugs Inc.: Hoffman Discount Drugs Inc’s bonus plan is affected by 3 uncontrollable events determined by corporate and regional managers. The managers are allowed to make any adjustments they chose and require in regards to natural disaster, robberies, and riots & looting. However, corporate did not clearly indicate the particulars of each of the uncontrollable event. In particular, results could be specific to the manipulation of event likelihood, for instance theft due carelessness employees. Should those events be considered an uncontrollable events or partially uncontrollable factor? Shouldn’t corporate investigate all claims limit the materiality effect of the threshold? By doing this corporate can decrease the risk store managers being influenced by gamesmanship. Store managers can intentionally increase their claim loss. For instance, Jane Firstenburg was only 280$ short from the corporate adjustment of offsetting the effect of the uncontrollable event for net income purposes. Jane felt that the compensation interdependence was too high, and she feared that she could lose some of her management team. She could have destroyed 281$ worth of inventory or over evaluated the damages and thus would receive a greater bonus for her and her team. Corporate should consider the costs and benefits of making adjustments. It would be costly for management in terms of time and cost to investigate the claims and determine the appropriate adjustment. Adjustments should be used to motivate different types of effort in future.

Corporate should also consider other uncontrollable events when designing discretionary bonus adjustments such as economic factors.