What Is the Company's Management Structure?

1) What is the company’s management structure?

HCC Industries’ current management structure is organized into four main divisions, each headed by its own general manager. The company’s philosophy is to decentralize management in order to let managers have control over their own independent areas. The general managers report to the COO Al Berger. The managers are responsible for all functions of the division except that which are held by the “controllers”, who report directly to the CFO Chris Bateman. The reason for keeping division controllers separate is to maintain the company’s financial integrity and to discourage the motivation to “cook the books.” The three different divisions are Hermatic Seal, Glasseal, and Sealtron. For the most part, corporate staff only monitored nonoperation activities. However, in 1987 this started to change as a corporate marketing division was established followed by a corporate engineering service function. The current managers who were accustomed to having control over their own individual departments did not eagerly accept the changes that corporate was making.

2) What are the primary differences between HCC’s new and old budget processes?

Until 1987, HCC Industries’ management used “stretch” performance targets. Each manager had a “bonus potential” which often was 30% of his or her salary. His or her targets directly affected his or her bonus payout. Bonuses were paid on two criteria; the first being profits before tax (PBT) and the second was a subjective performance rating. Under the old budgeting system, if a division achieved below 60% of their target, then the manager received 0% of the performance section of their bonus. If they hit 60% of their target then they received 80%; if they reached 100% of their target they received 100%; and hitting 140% of their target led to them be awarded 150%. The subjective portion was based on top management’s perceived degree of accomplishment in 7 performance areas. For instance, even if a manager met 5 out of the 7 criteria, but the other 2 he did not meet were deemed to be “critical”, he could potentially receive no bonus.

However, in 1986 Andy Goldberg introduced the “Minimum Performance Standard.” Instead of using stretch targets, the managers were instructed to set targets that were not only attainable, but that were deemed necessary for the company’s success. Under the new system, it was also more likely that a manager would hit 100% of their target than under the old system. Managers were also now asked to set a secondary target, which they may only have a 50% chance of reaching. The incentive program also changed; 20% of the bonus was based on actual PBT exceeding MPS, in addition to 25% of the amount by which managers exceeded the target. Although the new system was mainly based on PBT, bonuses were still affected