Question three asks how might the new EVA system influence the willingness of managers to accept job transfers across divisions at Duckworth Industries. Since the mechanism for calculating incentive compensation plan allows for self-adjustment, this should positively influence a manager's willingness to accept interdepartmental transfers. The self- adjustment can be explained by describing the four mechanisms of the plan. First, the bonus target such as 37% is established. This means that a unit like phantom stock is assigned to each manager at a specific value and each manager would earn a desired level of bonus based on his/her individual performance. The second mechanism gives this system its self- adjusting property because the baseline EVA level is created where it would adjust the following year by half of the difference between the actual EVA gained and the baseline EVA for the previous year. This allows the targets to continue to remain within reaching distance. The third mechanism creates a base unit value and can be determined by how much of the target bonus could be ascertained by maintaining the status quo of business performance. The last mechanism is a bonus sensitivity factor where monies can be added or subtracted from the base unit in order to establish a total unit value.
