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FirstFederal - Background and Relevant Facts First Federal...

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Background and Relevant Facts First Federal Savings and Loan Association of Phoenix, chartered in 1934, grew steadily over the subsequent years and decades through the intelligent acquisition of another bank followed by even more intelligent decisions regarding branch openings. Through the strategic placement of branches in areas of anticipated economic growth, combined with the competitive offering of convenient services to local residents, the company had grown by 1973 to become one of the twenty-five largest savings and loan institutions in the United States. Such a growth rate put the company in the position of needing to integrate and to focus its operations so as to become even more competitive and thus to continue its impressive success at market penetration. To achieve that end, top management at First Federal opted in 1968 to institute a bonus plan using the popular and effective management by objectives (MBO) process. A Harvard Business School report on the company by Stephen Doyle states: "In the eyes of top management, superior employee performance would be the key to accelerated corporate growth and profits. [...] The cost of the incentive plan was considered to be self-liquidating, because the bonus pool came from funds that were generated above and beyond the expected profit levels." Company president Gene Rice elaborates: "The MBO system was instituted as a planning tool for the future and the changes it would bring." This system includes measurable goals both financial and non-financial. These goals develop during the third quarter of each year through collaborations between managers at the branch, regional, and corporate levels. Bonuses tie strongly to financial goals such as profit growth. This system thus relies heavily on offering or withholding bonuses based on some factors, such as unexpected economic downturns, that fall outside the locus of control of employees. Such a downturn took place in 1974 and so leads to a proper:
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Problem Definition Due to an unexpected economic downturn that has eroded profits and prevented the company from meeting its financial goals, First Federal Savings and Loan Association of Phoenix faces challenges in determining how best to use its Management by Objectives (MBO) profit-based cash bonus system to continue to motivate its employees into high performance.
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