Massachusetts Financial Services Harvard Case Solution & Analysis

MASSACHUSETTS FINANCIAL SERVICES CASE ANALYSIS

INTRODUCTION

Massachusetts Financial Services is in the business of managing investment as an investment management company and it established its business operation in the year 1924. It was established by the name of Massachusetts Investors Trust and was located in Boston city but later changed its name to Massachusetts Financial Services. The management of the company introduced the compensation system that was subjective to the performance of the employees. The senior management of the company introduced the hedge funds into the firm, which created an opportunity to generate maximum revenue by investing into these hedge funds.

While introducing the hedge funds several problems arose and the management was concerned about how to compensate those who are managing hedge funds and the other question regarding the compensation was that in case the company compensated the management then how much company would compensate because currently MFS was compensating the management 20% of the upside of the hedge fund that was harming the company’s companionship culture. Another concern was that whether the company should adopt the new compensation plan, which was to compensate the management of the hedge fund on the basis of performance. If doing so, could it lead towards the increase in the employee turnover rate as when hedge fund was established and was made available to the general public two managers left the company and started their own firm? As these managers left the company, hence, MFS closed down the availability of the hedge fund in institutional domestic investment market. Mark Regan was the employee of MFS veteran and he was chosen to be the new manager of the hedge fund and at current situation he was the head of the hedge fund, which was available for the foreign investors.

Massachusetts Financial Services has the following organizational structure:

PROBLEM STATEMENT

The problem in the case is that MFS wanted to implement the new compensation plan but company has concern related to the negative impact on it on the culture.

EVALUATION

In the year 1924, the firm introduced the mutual fund for clients and it gave them an opportunity to invest and the company also provided them the opportunity to redeem the shares on demand of the clients. The company was successful in achieving its first vision plan by capturing the market within the determined time, which led the company to become the leading player of the market. During that period of time, the company had assets of about $30 million. In the middle of the 1970-1980, exponential growth companies existed such as Fidelity and Putnam and these two companies jumped into the business inconsistently. In that era, MFS fell from the top 10 companies list. This was because the company made some traditional investing decisions according to the MFS’s distribution style it had at that time.

The new generation was the part of the leading management in MFS. The new management came up with the new strategic idea that the company should insistently enter into the institutional hedge funds market. They also included the fixed and variable income funds and equity funds by separately managing these accounts on behalf of the institutions by incorporating their assets into it. They also provided the retirement mutual funds.

The desire for the rapid growth and to regain the position in top 10 companies in the market, they entered into the institutional market for that Mr. Shames that made it possible to regain MFS’ lost reputation. During that year, the total assets worth in the institutional market was around $31 billion and from these $6.4 billion were in the new institutional pipeline. In the year 2000, MFS had total worth of assets under the mutual funds management around $140 billion and also had pre-tax earnings of around $300 million.

MFS had maintained its cultural values, strong believes in the culture and followed the anti-star system. As per compensation strategy, they made it possible to disburse the salary with bonuses and equity in the MFS. The management of the Massachusetts Financial Services was believed in the subjective compensation plan, which was based on the performance evaluation that determined the compensation for the management. The bonuses that were given to the management were based on the three key factors:

  • Fund Performance
  • Management contribution in the investment process
  • Management contribution towards the company

The performance based on the objective comprise of 60%, on the other hand performance based on subjective compensation plan was given the 40% weighting.  The company used the 360 degree style of feedback .....................

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This case describes the compensation and evaluation of the company's investment management business. Top management of Massachusetts Financial Services (MFS) Investment Management saw the introduction of hedge funds in the company, but many believe that the typical hedge fund payment (20% growth) will harm MFS culture that glorified "star performance, but not a star ego ". The case represents a philosophy of MFS and compensation plan (including an emphasis on subjective compensation plan), the types of people it attracted, as a result of culture, and how senior management approached the issue of hedge funds. It includes a discussion of the specific human capital firm. "Hide
by Brian J. Hall, Jonathan P. Lim Source: HBS Premier Case Collection 26 pages. Publication Date: January 17, 2002. Prod. # 902 132-PDF-ENG

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