Rockstar PLC
We had to do something different. The company was doing great according to all the performance indicators we monitored, and our managers were earning nice bonuses, but the shareowners weren`t benefiting. – William Embleton William Embleton, managing director of Rockstar PLC, explained why his company had implemented a new incentive system based on an "economic profit" measure of performance starting in the year 2000. In 2002, however, Rockstar’s managers were questioning whether their new system had had its desired effects. The new economic profit measure did not seem to be any better in reflecting shareowner returns than did the old measure – accounting earnings – on which Rockstar’s managers had previously focused. And the new system was causing some management confusion and a perceived unfairness issue. Mr. Embleton had to decide whether to modify the new system, and if so how, or to replace it with something else.

The Company
Rockstar PLC was founded in 1852 as a brewery serving local pubs. Over the years it had grown, both internally and by acquisition. In 2002, Rockstar PLC was a medium-sized, publicly held corporation focused on the beverages and snack foods industry. It had annual turnover of about £500 million and it employed nearly 3,500 people in six countries. Rockstar PLC was listed on the London Stock Exchange. The company headquarters were still located in Manchester, England, where the company was founded. Rockstar PLC had four operating divisions: beer, spirits, soft drinks, and snack foods. The managing directors of each of these divisions had considerable autonomy because Rockstar PLC operated in a decentralized fashion. The small headquarters staff was primarily responsible for coordinating the finance, human resources, and various administrative functions (e.g., legal information systems).

Management and Incentive Systems