Question

Jennifer Baskiter is president and CEO of Plants&More, an Internet company that sells plants and flowers. The success of her startup Internet company has motivated her to expand and create two divisions. One division focuses on sales to the general public and the other focuses on business-to-business sales to hotels, restaurants, and other firms that want plants and flowers for their businesses. She is considering using a return on investment as a means of evaluating her divisions and their managers. She has hired you as a compensation consultant. What issues or concerns would you raise regarding the use of ROI for evaluating the divisions and their managers?

Answer 1

Evaluating Divisional Managers on the basis of ROI may not be goal congruent.

Step-by-step explanation:

While Return On Investment (ROI) is a common denominator for comparing the returns of dissimilar business or divisions, it has its demerits.

A problem exists when this measure is used to evaluate performance of divisional managers. Evaluating Divisional Managers on the basis of ROI may not be goal congruent.

Divisional Managers will accept or not accept projects in their best interest if new projects does not result in greater ROI than the previous,leaving or ignoring the company interest.