Performance Measurement Systems and Design

SECTION B VerdiGrow is an agricultural technology (AgriTech) firm that operates large-scale, indoor vertical hydroponic farms in urban centers. They supply fresh produce to high-end restaurants and premium supermarkets. Exhibit 1: Current Reward System Currently, Farm Managers are incentivized through a performance-related pay (PRP) scheme. A manager receives a flat 10% bonus on top of their base salary if their facility's total crop yield exceeds 10,000 tons per quarter. Recently, the Board has noticed severe issues: energy costs for LED lighting and climate control have skyrocketed, the taste and aesthetic quality of the produce have declined (leading to customer complaints), and a significant amount of unsold, substandard produce is being thrown away. Exhibit 2: Quality Management Initiative To combat the declining quality, the CEO wants to implement Total Quality Management (TQM) and introduce a 'Cost of Quality' reporting framework. The CEO is unsure how quality costs are categorized and how they apply to a vertical farming environment. REQUIREMENTS: Write a report to the CEO of VerdiGrow which: (a) Evaluates the behavioral implications of the current reward system and recommends a new performance-related pay structure that aligns with VerdiGrow's need for quality, cost-efficiency, and sustainability. (12 marks) (b) Explains the four categories of quality costs and advises how VerdiGrow could measure them to support the new TQM initiative. (8 marks) Professional marks will be awarded for the format, style, and structure of the report, as well as clarity of communication. (5 marks)