Week 11 - 12 chapter notes

27 views3 pages
9 Jan 2011

For unlimited access to Textbook Notes, a Class+ subscription is required.

Chapter 15 Performance Evaluation and Compensation Notes
Decision-Making Authority and Responsibility
x one approach to measuring, monitoring, and motivating employee performance is to give specific decision-making authority to
employees and then hold them responsible for and reward them for the results of their decisions
x shareholders give managers authority to decide how corporations’ resources are used
x then, shareholders hold the managers responsible for creating shareholder value
Centralized and Decentralized Organizations
x when decision-making is centralized, the right to make or authorize decisions lies within top levels of management
x when decision-making is decentralized, the rights and responsibilities for decision-making permeate all levels of the organization
General versus Specific Knowledge
x general knowledge Æ information that is easy to transfer from one person to another within an organization
x decisions based on general knowledge are likely to be centralized, made primarily by the CEO and other top managers
x transferring general knowledge needed for decision-making to organization’s headquarters is relatively easy and not very costly
x specific knowledge Æ detailed info about particular processes, customers, or products; info that is costly to transfer within firm
Choosing a Centralized versus Decentralized Organizational Structure
Centralized Organizations Decentralized Organizations
Advantages Disadvantages Advantages Disadvantages
x less monitoring of
x decisions are intended to
benefit overall firm
x if decision makers have
complete info, timely and
efficient decisions are
x good for stable operations
and economic conditions
x more monitoring of
employee effort because
they may be less
x decision makers may not
have complete info,
resulting in poorer-quality
x when knowledge from
subunits is required, the
decision-making process
slows down
x not appropriate for
dynamic processes and
volatile economic
x timely decision-making;
appropriate for dynamic
processes and unstable
economic conditions
x decisions are made by
people who have most
knowledge and expertise
x upper management has
time to focus on
organizational strategies
x decision-making authority
combined with reward
systems provide more
motivation to exert
optimal effort at the
subunit level
x decisions may meet
objectives of decision
maker’s subunit but not
meet organizational goals
x decisions may not be
coordinated among
subunits, resulting in less
effective decision-making
for full organization
x decision makers may not
understand or agree with
organizational strategies
x lack of coordination
among subunits may lead
to duplication of products,
services, and effort
Responsibility Accounting
x in centralized organizations, information produced by the accounting system for decision-making is used primarily by top
managers who are held responsible for both their effort and the quality of their decisions
x employees carry out tasks that result and are held responsible for their effort and compliance with top-down decisions
x therefore, individual and team efforts require close monitoring to determine their contributions to success
x managers use variance and productivity reports to gauge employee (individual and team) efforts
x in decentralized organizations, decision-making occurs throughout management levels and in the field
x employees in lower levels are held responsible for their efforts and the quality of their decisions
x therefore, accounting systems are used to provide decision-making information for all levels, from management to frontline
x broader accounting measures related to overall financial performance are used to measure and monitor performance
x responsibility accounting Æ assigning decision-making authority and responsibility to managers and monitoring performance
x responsibility centres Æ subunit over which managers are accountable for specific types of operating activities
Cost Centres
x cost centres Æ responsibility centre in which managers are accountable for producing goods or services efficiently (minimizing
costs for a certain level of output, or maximizing output for a certain level of cost)
x managers in these cost centres are responsible for producing their goods or services efficiently
x discretionary cost centres Æ cost centre for which output is not easily measurable in dollars or activities
Revenue Centres
x revenue centres Æ responsibility centre in which managers are accountable for revenues
x if the manager in a revenue centre is responsible for setting prices, gross revenues can be used as a performance headquarters
x else, managers’ performance can be evaluated using a combination of sales volumes measured in units and sales mix
x many organizations treat their sales departments as revenue centres and reward employees based on sales generated
Profit Centres
x profit centres Æ responsibility centre in which managers are accountable for both revenues and cost (i.e., profits)
x managers are responsible for decisions about inputs, product mix, pricing, and volume of goods or services produced
x because they include both revenues and costs, performance is measured using some combination of revenue and cost measures
x some measures of profits such as accounting earnings are used
Unlock document

This preview shows page 1 of the document.
Unlock all 3 pages and 3 million more documents.

Already have an account? Log in

Get access

$10 USD/m
Billed $120 USD annually
Homework Help
Class Notes
Textbook Notes
40 Verified Answers
Study Guides
1 Booster Class
$8 USD/m
Billed $96 USD annually
Homework Help
Class Notes
Textbook Notes
30 Verified Answers
Study Guides
1 Booster Class