Fiedler International:

Fiedler International:

You work on a team that reports to the chief financial officer of Fiedler International, a consumer products company that manages a variety of consumer beauty brands (shampoos, facial soaps, deodorants). Your team evaluates possible acquisitions. You arc currently analyzing the possible purchase of Lush, a manufacturer of face moisturizers with UV sun blockers l.ush is a small publicly traded company that has no single large shareholder. Most of the stock is held by institutional investors and l.ush managers hold a small percentage of the stock.

The materials you have received from l.ush include information about its senior management performance evaluation and incentive compensation plans. Lush uses a balanced scorecatd toevalu ate and reward senior managers Manage is can earn up to 50 percent of their salary as a bonus depending on four balanced scorecard metrics: customer service, human resources and innovation, operational efficiency, and financial performance. Each of the four metrics is scaled between 0 and I. Senior managers receive up to 25 percent of their bonus for each metric. If the customer service met tic is 0.67. and a particular manager's salary is $400,000. then for customer service that manager receives $33,500 (50% x $400,000 x 0.67 x 25%). The compensation committee of Lush's board of

'Other updating cost of $450 pci two-bottle set is a constant and docs not v.uv with the amount spent on quulity.

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directors sets the scale for each of the four metrics. For example, the financial performance metric is economic value added, or EVA, Last year's EVA was S13 million. The compensation committee sets the lower and upper bound of EVA as SI 2 million and $I6 million. Hence, if the current year's EVA is $I2 million, the financial performance metric is 0. If EVA is $15 million, the metric is 0.75 [($15