Accy 304 johnson

TO : Johnson & Johnson's Board of Directors FROM : John Drake DATE: October 19, 2017 SUBJECT : Compensation Policy for Johnson & Johnson Dear Board of Directors, I believe that it is not in the firm's best interest to pay its employees for achieving target performance. First, I believe that budget planning should be separated from compensation policy. Tying budget planning to compensation policy has been proven to be ineffective and does not benefit the firm in the long-run. The reason is that giving compensation to employees to achieve target performance would encourage them to act in ways that might not be in the firm's best interest. For example, an employee might push sales in the future period to the current period just to achieve the target performance. Vice versa, an employee might also push current period sales to future period because the minimum target is already achieved. With that being said, I do believe that employees should still be compensated for good performance. However, compensation policy should not be the baseline to evaluate performance. Second, I believe that there are many external factors that could affect the operational plan. Projected sales often do not consider external factors that are not under the manager's control, such as changes in price, market condition, natural disaster, etc. Managers should not be held accountable when the actual numbers are different from the budgeted target since there are many factors that are uncontrollable by the managers.
Furthermore, I believe that Johnson & Johnson should invest more in a system that would monitor performance to ensure that targets are being achieved. Managers should also be notified that they are accountable for their projected numbers. Hence, the system would ensure that accuracy is being monitored and inaccuracy would be punished accordingly. Increase monitoring activity would also help the firm to ensure that employees are acting in ways that would benefit the firm. Even though a system like this would initially be costly for the firm, the benefits in the long-run would outweigh the cost. Monitoring activity would reduce undesirable behaviors by watching employee's performance closely. To conclude, I think it is in Johnson & Johnson's best interest to separate employee's compensation from budgeted sales. I also think that the firm should increase its monitoring activity. I hope this information would be helpful for Johnson & Johnson and please do not hesitate to contact me if you have any questions. Best regards, Ave Violentina
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