Hanson Manufacturing Company

In February 1993 Herbert Wessling was appointed general manager by Paul Hanson, president of Hanson Manufacturing Company. Wessling, age 56, had wide executive experience in manufacturing products similar to those of the Hanson Company. The appointment of Wessling results from management problems arising from the death of Richard Hanson, founder and, until his death in early 1992, president of the company. Paul Hanson had only four years’ experience with the company, and in early 1993 was 34 years old. His father had hoped to train Paul over a 10-year period, but the father’s untimely death had cut short this seasoning period. The younger Hanson became president after his father’s death, and had exercised full control until he hired Mr. Wessling.

Paul Hanson knew that he had made several poor decisions during 1992 and that the morale of the organization had suffered, apparently through lack of confidence in him. When he received the 1992 income statement (Exhibit 1), the loss of almost $200,000 during a relatively good year for the industry convinced him that he needed help. He attracted Mr. Wessling from a competitor by offering a stock option incentive in addition to salary, knowing that Wessling wanted to acquire financial security for his retirement. The two men came to a clear understanding that Wessling, as general manager, had full authority to execute any changes he desired. In addition, Wessling would explain the reasons for his decisions to Mr. Hanson and thereby train him for successful leadership upon Wessling’s retirement.

Hanson Manufacturing Company made only three industrial products, 101, 102, and 103, in its single plant. These were sold by the company sales force for use in the processes of other manufactures. All of the sales force, on a salary basis, sold the three products but in varying