The Crimson Press Curriculum Center

First Page and the Assignment Questions:
This incentive program is still in its infancy stages, but we believe that we are on the right path. What has amazed us throughout this process is just how difficult it is to achieve a performance bonus program that truly inspires and acknowledges strong performance. I believe that for this reason most enterprises either "settle" for programs that look great on paper but are ineffective in practice, or avoid this type of a program altogether in favor of compensation mechanisms that do not really examine individual performance metrics that are (ironically) most essential to the success of the business plan. Though no plan is perfect, we are determined to develop this program in a way that is first and foremost a benefit to our customers, while addressing our values as a corporation.

    —Michael Surace, Field Service/Support Manager, Diagnostic Products Corporation

In the second quarter of 2004, Diagnostic Products Corporation implemented a new Performance Bonus Program for its U.S.-based Field Service Engineers (FSEs). The new program provided rewards to FSEs based on their accomplishments, rather than for merely working long hours. The new program was still work in progress, however. Managers were still considering how some of the elements of the program should be structured, and they were not yet able to measure objectively the FSEs' performances in all of the critical aspects of their jobs.

THE COMPANY

Diagnostic Products Corporation (DPC) designed, manufactured, and marketed laboratory instruments and reagents designed for immunodiagnostic testing. The tests were for the diagnosis, monitoring, management, and prevention of various diseases, including thyroid disorders, reproductive disorders, cardiovascular disorders, allergies, infectious diseases, and certain types of cancer. All of DPC's tests were performed in vitro, which is through samples removed from the body, such as blood, urine, tissues, or other bodily fluids.

DPC's products were sold to hospitals, independent clinical laboratories, and physician office laboratories, as well as forensic, research, references, and veterinary laboratories. The company sold its products through independent distributors as well as through its own sales force.

Historically, foreign sales accounted for more than 70% of revenues, although in recent years domestic sales growth had outpaced foreign sales growth. In 2003, the company generated slightly in excess of $60 million in profit after tax on revenues of nearly $400 million (see Exhibit 1). DPC stock was listed on the New York Stock Exchange (symbol: DP).

Assignment

1.    Evaluate both the design of the DPC Performance Bonus Program for U.S.-based field service engineers (FSEs) as it currently exists and the way in which the Program is being implemented. What changes would you suggest, if any?

2.    Instead of using a results-control system like the Performance Bonus Program could DPC control its U.S.-based FSEs effectively using only action and/or personnel/cultural controls? If so, what would such a system look like? If not, why not?