BUS4098 3-year Strategic Plan Assignment

3-Year Strategic Plan Assignment

The following point system governs how your company's “performance score” on the 3-year strategic plan will be determined:

14 points for setting any one target below the Investor Expectation Standard and then meeting or beating the target — a maximum score of 70 points (or C–) if applied to all 5 performance measures for each year of the plan. Underachievement of a particular target results in a point reduction proportional to the underachievement, subject to a minimum “consolation prize” score of 10 points on the targets set for EPS, ROE, and stock price. Under no circumstances will any points be awarded for setting a credit rating target below B or an image rating target below 50. Moreover, the points awarded to companies struggling to reach "rock-bottom" performances of $1.00 for EPS, 10% ROE, and a $20 stock price are a function of how close their targets are to these "rock bottom” levels — such companies will normally have difficulty earning 70 points but can score 50 or higher with a plan that incorporates a successful turnaround strategy and that delivers upward trending results (albeit with a low overall performance level). 16 points for setting EPS, ROE, Stock Price, and Image Rating targets equal to the Investor Expectation Standard and setting the Credit Rating Target to B+, and then meeting or beating the target — a maximum score of 80 points if applied to all 5 performance targets. If a target is only partially met, a proportional number of points is awarded (thus achieving an EPS of $2.63 when the Investor Expectations Standard is $3.50 results in an award of 12 points). If the Investor Expectations Standard is an EPS of $3.75 and actual EPS turns out to be just $1.25 (33% of the targeted level), then your company will be awarded the automatic minimum 10-point consolation score for EPS. 18 points for setting a stretch-objective for any one performance measure that is "one notch" above the applicable performance level outlined below and then meeting or beating the target (a maximum of 90 points if applied to all five performance measures). "One-notch" stretch-objectives are defined as:

EPS (depending on whether or not a company has already exceeded the Investor Expectation level for EPS)

10% above the company’s prior-year EPS for EACH of the 3 upcoming years if the company's EPS was above the Investor Expectation level for the prior-year. 10% above the Investor Expectation for EACH of the 3 upcoming years if the company’s EPS was at or below the Investor Expectation level for the prior year.

Stock Price (depending on whether or not a company has already exceeded the Investor Expectation level for stock price)

10% above the company’s prior-year Stock Price for EACH of the 3 upcoming years if the company's Stock Price was above the Investor Expectation level for the prior-year. 10% above the Investor Expectation for EACH of the 3 upcoming years if the company’s Stock Price was at or below the Investor Expectation level for the prior year.

ROE (depending on whether or not a company has already exceeded the Investor Expectation level for ROE)

Schedule & Scores Preparation Evaluation Scoring

10% above the company’s prior-year ROE for EACH of the 3 upcoming years if the company's ROE was above the Investor Expectation level for the prior-year. 10% above the Investor Expectation for EACH of the 3 upcoming years if the company’s ROE was at or below the Investor Expectation level for the prior year.

Credit Rating – Setting and achieving a target credit rating of A– Image Rating – 10% above the Investor Expectation for EACH of the 3 upcoming years

19 points for setting a stretch-objective for any one performance measure that is "two notches" above the applicable performance level outlined below and then meeting or beating the target (a maximum of 95 points if applied to all five performance measures). "Two-notch" stretch-objectives are defined as:

EPS (depending on whether or not a company has already exceeded the Investor Expectation level for EPS)

20% above the company’s prior-year EPS for EACH of the 3 upcoming years if the company's EPS was above the Investor Expectation level for the prior-year. 20% above the Investor Expectation for EACH of the 3 upcoming years if the company’s EPS was at or below the Investor Expectation level for the prior year.

Stock Price (depending on whether or not a company has already exceeded the Investor Expectation level for stock price)

20% above the company’s prior-year Stock Price for EACH of the 3 upcoming years if the company's Stock Price was above the Investor Expectation level for the prior-year. 20% above the Investor Expectation for EACH of the 3 upcoming years if the company’s Stock Price was at or below the Investor Expectation level for the prior year.

ROE (depending on whether or not a company has already exceeded the Investor Expectation level for ROE)

20% above the company’s prior-year ROE for EACH of the 3 upcoming years if the company's ROE was above the Investor Expectation level for the prior-year. 20% above the Investor Expectation for EACH of the 3 upcoming years if the company’s ROE was at or below the Investor Expectation level for the prior year.

Credit Rating – Setting and achieving a target credit rating of A Image Rating – 20% above the Investor Expectation for EACH of the 3 upcoming years

20 points for setting a stretch-objective for any one performance measure that is "three notches" above the applicable performance level outlined below and then meeting or beating the target (a maximum of 100 points if applied to all five performance measures). "Three-notch" stretch-objectives are defined as:

EPS (depending on whether or not a company has already exceeded the Investor Expectation level for EPS)

30% above the company’s prior-year EPS for EACH of the 3 upcoming years if the company's EPS was above the Investor Expectation level for the prior-year. 30% above the Investor Expectation for EACH of the 3 upcoming years if the company’s EPS was at or below the Investor Expectation level for the prior year.

Stock Price (depending on whether or not a company has already exceeded the Investor Expectation level for stock price)

30% above the company’s prior-year Stock Price for EACH of the 3 upcoming years if the company's Stock Price was above the Investor Expectation level for the prior-year. 30% above the Investor Expectation for EACH of the 3 upcoming years if the company’s Stock Price was at or below the Investor Expectation level for the prior year.

ROE (depending on whether or not a company has already exceeded the Investor Expectation level for ROE)

30% above the company’s prior-year ROE for EACH of the 3 upcoming years if the company's ROE was above the Investor Expectation level for the prior-year. 30% above the Investor Expectation for EACH of the 3 upcoming years if the company’s ROE was at or below the Investor Expectation level for the prior year.

Credit Rating – Setting and achieving a target credit rating of A+ Image Rating – 30% above the Investor Expectation for Years 14 and 15, and an Image Rating of 100 for years 16-20.

Different degrees of stretch objectives (one-notch versus two-notch versus three-notch) can be set for different performance measures. Company co-managers have complete flexibility to set an A+ credit rating objective (a three-notch stretch), an image rating objective of 75 (a one- notch stretch), a 20% ROE objective (a two-notch stretch), an EPS objective equal to the normal expectation, and a stock price objective that is below the investor expectation level.

If your company meets or beats a performance target, then your performance score for that target equals the corresponding number of points for the target you set. Underachievement of any of any target results in a point reduction proportional to the underachievement, subject to a minimum “consolation prize” score of 10 points on any one target. For instance, if you set a 30% stretch target of $10 per share for EPS (which carries a score of 20 points if achieved) and actual EPS turns out to be just $6 (which is only 60% of the targeted level), then you will incur an 8-point penalty and get only 12 points (60% of 20 points). Consequently, it is risky and unwise to prepare a plan with overly ambitious stretch objectives that require highly optimistic or even “fairy-tale” prices, sales volumes, market shares, and profit margins in order to reach the targeted levels of performance — the point penalty for committing to achieve performance targets that you cannot deliver on can be pretty severe.

To get a “good” (80 or better) performance score for any one year of the plan, the scoring approach requires that a company achieve performance levels at least commensurate with investor expectations that year (as shown on pages 2 and 3 of each year’s Footwear Industry Report)). To receive scores above 80, a company must set “stretch objectives” that are higher than the investor minimum performance targets and then meet or beat these stretch targets.

Clearly, the point system for judging the caliber of a company’s strategic plan (1) rewards co- managers for setting stretch objectives and then succeeding in meeting or beating the stretch objectives and (2) punishes the strategic plan scores of companies when the targeted levels of performance are not met.

The scoring is based on the principles that

A company’s strategic plan is “good” if management met or beat the targeted levels of performance and if these targets contained some “stretch.” A company’s 3-year strategic plan is “not so good” if it results in a performance far short of what was promised—there can be no applause whatsoever for a strategic plan that over promises and under delivers. There is no glory to be gained by “sandbagging” and setting easily achieved performance targets— setting and achieving high stretch objectives earns a higher strategic plan score that does a plan where company co-managers set lower target objectives and achieve them.

A company’s performance score for any one year of the plan is the sum of the points earned for each of the five performance targets.

A company's overall performance score on the 3-year plan is the average of the performance scores earned for each of the 3 years of the plan period.

Special Note: The scores you and your co-managers earn on the 3-year plan are reported on the top of this page. As the results for each year of the plan become available, just click on the 3-Year Strategic Plan link in the Assignments Menu box near the top of your Corporate Lobby screen and the scores will be shown at the top of the screen.