978-0137024971 Chapter 9 Part 4

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(d) The top employees will likely stay since their income will increase. The

weaker sales people will likely leave to find jobs where the income is not

so risky. In general, this system will tend to attract high-pressure sales

people who are sales-oriented and who will be unwilling to do anything

9-93 (a) This incentive scheme, which is traditional in government, is

inappropriate. It promotes building up staff without regard to the true

(b) The performance measurement scheme should reward the ability to

achieve outcome targets defined by client requirements that the

9-94 (a) Based on salary—easy to administer, likely to be considered fair and, to

the extent that salary reflects the relative ability to contribute to results,

is based on contribution; based on equal share—easy to administer,

impact.

(b) Based on salary—may convince lower level employees that they have

little to contribute, does not necessarily reflect contributions; based on

equal share—may have little motivational effect, may lead to feelings of

performance measure.

Atkinson, Solutions Manual t/a Management Accounting, 6E

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(c) The choice should be reasoned. The response should identify the

behavior.

CASES

9-95 Anne Wu should proceed carefully.

(b) The organization seems to be stressing quantitative information (volume

the examiner’s work.

9-96 This response describes what is reported about Sherron Watkins’s experiences

She stated the following [2]:

A number of assets were hedged with an entity called

Raptor. Any asset that was hedged should, for the most part,

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of the Raptor.

It was my understanding that the Raptor special-purpose

entities were owned by LJM, a partnership run by Mr.

Fastow. In completing my work, certain Enron business

owed Enron.

I was highly alarmed by the information I was receiving. My

understanding as an accountant is that a company could

never use its own stock to generate a gain or avoid a loss on

Watkins’s response is summarized in [4].

According to [5], Cooper’s trail of discovery began when an executive

told her that “corporate accounting had taken $400 million out of his

expenditures that should have been expensed.

(b) Watkins appears to have considered or attempted to implement options 1

or 4. Option 1 is to point out the discrepancy to a superior and refuse to

act unethically, understanding that this may lead to dismissal. When

14, 2001, the new CEO, Kenneth Lay, invited all employees to submit

Atkinson, Solutions Manual t/a Management Accounting, 6E

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questions for an August 16 meeting at which Lay would talk about

22. Watkins prepared a memo detailing her concerns. She included the

following quote from a manager–level employee: “…I wish we would get

caught. We are such a crooked company” [2, 6 (p. 367)]. Watkins hoped

that after the first memo, “the company would act on her suggestions,

Watkins’s memos became public because her memos were part of the

many, many documents subpoenaed by the House Committee on Energy

and Commerce. Watkins and her memos became national news [6, pp.

Cooper also attempted to implement options 1 and 4. She approached the

company’s audit firm, Arthur Andersen, and CFO Scott Sullivan about

the troublesome accounting issue. Reference [5] reports that Cooper

received assurances from Arthur Andersen; she was so concerned about

(c) As stated in part (b), Watkins certainly felt pressured not to challenge

Fastow and Skilling, regardless of the issue. Her information raised

serious concerns about extremely serious accounting improprieties, and

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Similarly, Cooper felt great pressure not to challenge CFO Sullivan. Her

around financially.

(d) Enron’s 2000 on-line annual report lists four key values: communication,

respect, integrity, and excellence [7]. Enron distributed illustrated

booklets listing these four values [6, p. 103], and Skilling and Lay

employees use his sister’s travel agency [6, p. 36].

A job satisfaction survey at Enron in the mid-1990s revealed that many

people felt uneasy about expressing their opinions at Enron. Lay and

lawyers provided information to management about legal issues related

to firing whistleblowers [4]. Watkins discovered this in February 2002.

She commented, “There’s nothing in there to remind them to remember

the code of conduct, the vision and values” [4].

compensated, so that neither group had incentives to confront the leaders

on questionable practices.

Atkinson, Solutions Manual t/a Management Accounting, 6E

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[3]:

… none of them are rebels in the usual sense. The truest of true

believers is more like it, ever faithful to the idea that where

dropped it off” [4]. Reference [4] describes Watkins as independent and

known for openly stating her opinions and being able to support them.

(f) As mentioned in (d), Watkins discovered that very shortly after she met

safety [4].

At WorldCom, employees were expected not to question the company’s

practices (see part (d)), and Cooper personally felt Sullivan’s hostility

(see part (a)). Cooper suffered great stress. Following the resulting

accounting impropriety [8].

(g) This question is designed to challenge students to think about and

discuss how they will make ethical decisions, especially in the face of

severe personal consequences. In addition, students may propose other

[1] Anonymous. “The Interview,”

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http://www.time.com/time/personoftheyear/2002/poyqa.html, posted

December 30, 2002-January 6, 2003, Vol. 160, Iss. 27; p. 58.

[2] Anonymous. “Enron’s Many Strands; ‘Lone Voice’: Excerpts from

December 30, 2002–January 6, 2003, Vol. 160, Iss. 27; p. 32.

[4] Morse, J. and A. Bower. “The Party Crasher,”

http://www.time.com/time/magazine/article/0,9171,1003992,00.ht

ml, accessed February 5, 2011. Formerly at

[5] Ripley, A. “The Night Detective,”

http://www.time.com/time/magazine/article/0,9171,1003990,00.ht

ml, accessed February 5, 2011. Formerly at

[6] Swartz, M. and S. Watkins. Power Failure: The Inside Story of the

viewed February 15, 2003.

[8] Zekany, K., L. Braun, and Z. Warder. 2004. “Behind Closed Doors

9-97 See the solutions for Case 2-48.

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9-98 Citibank Performance Evaluation, Harvard Business School Case (HBS Case

No. 9-198–048, teaching note No. 5-199–0471).

Textbook case questions:

As stated at the end of the first paragraph in the case, “… last year, the

California Division of Citibank had introduced a new performance

(b) What cause-and-effect linkages are implied in the Performance

Scorecard?

See TN-4 and the related teaching note discussion.

relation to the characteristics you identified.

See TN-5 and the related teaching note discussion of characteristics such

note was prepared by Professor Robert Simons and Professor Antonio Dávila at IESE for the sole

purpose of aiding classroom instructors in the use of Citibank: Performance Evaluation, HBS No.

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See the teaching note discussion, beginning with the section titled

“Performance evaluation.”

Harvard Business School Teaching Note

Teaching Objectives

This case presents the costs and benefits of using multiple performance

measures to evaluate performance. The issues presented in the case include:

 Introducing a performance scorecard as a diagnostic system to implement

intended strategy.

Case Synopsis

The top management team of Citibank California is meeting to review the

performance of the bank’s branch managers and decide their bonuses. James

James McGaran is the manager of the most important and toughest branch in

the Los Angeles area. His financial performance has been impressive since he

took charge of the branch in 1992. In 1996, his financial performance was,

again, outstanding, well above the targets defined by top management. But in

However, Lisa Johnson, his supervisor, is not convinced that a “par” rating

would fairly reward James’ effort. Some of the services measured in customer

satisfaction are not under James’ control including phone banking and ATM

Atkinson, Solutions Manual t/a Management Accounting, 6E

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Assignment Questions

1. Why has Citibank introduced a Performance Scorecard?

2. Assume that you are Lisa Johnson. Complete Exhibit 9-2 to evaluate

James’ performance.

Case Theory and Background

in terms of customer satisfaction is a good setting to discuss the characteristics

of a measure. The discussion naturally evolves around the issues of

measures to communicate strategy and evaluate performance. The implicit

assumption when using non-financial indicators is the existence of a business

evaluation and economic incentives. The evaluation process at Citibank

includes a target setting process, the use of financial, non-financial, subjective,

design of economic incentive systems.