Massachusetts Financial Services (MFS) Harvard Case Solution & Analysis

Question # 01:

Describe the most identifying two features of the way that MFS is managed?

Answer # 01:

Mutual funds are one of the reliable investment instruments, which provide better returns and secure investment. Massachusetts Financial Services (MFS) manages its funds very effectively and efficiently and has acquired a top position in the mutual fund investment sector. Massachusetts Financial Services (MFS) identifies different key features of the successfully managed funds.

The key success feature is the anti-star system in the organization and the second one is the compensation plan for the employees. Due to the anti-star system in the organization, everyone wants to work with the Massachusetts Financial Services (MFS). This philosophy in the organization encourages the employees to work, which polishes the Massachusetts Financial Services (MFS) to grow and become the market leader in the mutual fund industry. This policy also increases the performance of the employees as well as the organization to grow. The motto to implement this strategy in the Massachusetts Financial Services (MFS) is to evaluate the performance in the team. That team is evaluated on overall basis and not on the individual performance of an employee, which is the strategy adopted by other organizations. Massachusetts Financial Performance (MFS) does not believe in the promotion of an employee as the star performer.

The other feature of the success of the Massachusetts Financial Services (MFS) is the compensation strategy. Massachusetts Financial Services (MFS)  makes it possible to disburse the salary with bonuses and equity in the organization. The management of the Massachusetts Financial Services (MFS) considers the subjective compensation plan which is based on the performance evaluation which determines the compensation for the management. The bonuses that are given to the management of the Massachusetts Financial Services (MFS) based on the same factors are: fund performance of the company, management contribution in the investment process and management contribution to the company.

Question # 02:

Compared to other firms in the same industry, what is, the less important type of incentive and what constitutes the more important type of incentive for MFS employees?

Answer # 02:

The other feature of the success of the Massachusetts Financial Services (MFS) with respect to the entire industry  is its effective incentive plans.  MFS makes it possible to disburse the salary with bonuses and equity in the organization. The management of the Massachusetts Financial Services considers the subjective compensation plan which is based on the performance evaluation that determines the entire compensation. The bonuses that are given are based on the factors such as: fund performance of the company, management contribution in the investment process and management contribution to the company. The objectives of MFS are to enhance the performance by up to sixty percent, while on the other hand subjective performance gives the total of 40% on weightage.  In order to evaluate the performance of management MFS uses different  criteria to  make sure the effectiveness of the evaluation process. Since the company exists in the most competitive environment, therefore it refers to achieve the preferred comparative benchmark for devising bonus plans. Moreover, MFS is entirely focused on subjective performance for evaluation, which makes Massachusetts Financial Services (MFS) year to year pay variance minimum as compared to industry.

The performance of MFS has  remained categorically remarkable as compared to the entire  Industry which resulted in a competitive advantage for MFS.

Question # 03:

Describe the two main ways that MFS tries to address the inherent riskiness of bonus compensation for their portfolio managers?

Answer # 03:

The Bonus compensation plan has led the company into the crisis. MFS needs to adopt a new compensation plan that will reduce the employee turnover. Meanwhile the company is far more concerned about team performance which ultimately becomes riskier on the part of the implementing bonus compensation plan.

Due to unreasonable compensation plans, MFS has to address certain inherent risks that includes, higher employees turnover and downfall of the companionship culture respectively. The portfolio managers are obliged to address the relevant risks of bonus compensation as they already have lost two of their key managers. To overcome the damages caused by bonus compensation MFS needs to introduce new strategies that do not affect the culture of the company nor employee turnover.

Question # 04:

Besides providing motivation, what other roles do (incentive) compensation have within MFS?

Answer # 04:

Massachusetts Financial Services (MFS) normally pays their managers as a percentage of assets they are managing the company. Massachusetts Financial Services (MFS) managers receive the incentive basis performance reward as compared to the rest of the company receiving traditional performance rewards. Massachusetts Financial Services (MFS) pays the traditional subjective compensation plan to their hedge fund managers and also from the general bonus pool.....................

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