Response to the following problem:
Greg Peterson has recently been appointed vice president of operations for Webster Corporation. Greg has a manufacturing background and previously served as operations manager of Webster's Tractor Division. The business segments of Webster include the manufacture of heavy equipment, food processing, and financial services. In a recent conversation with Carol Andrews, Webster's chief financial officer, Greg suggested that segment managers be evaluated on the basis of the segment data appearing in Webster's annual financial report. This report presents revenues, earnings, identifiable assets, and depreciation for each segment for a five-year period. Greg believes that evaluating segment managers by criteria similar to that used in evaluating the company's top management would be appropriate. Carol has expressed her reservations about using segment information from the annual financial report for this purpose and has suggested that Greg consider other ways to evaluate the performance of segment managers.
Required:
1. Explain why the segment information prepared for public reporting purposes may not be appropriate for the evaluation of segment management performance.
2. Describe the possible behavioral impact of Webster Corporation's segment managers if their performance is evaluated on the basis of the information in the annual financial report.
3. Identify and describe several types of financial information that would be more appropriate for Greg to review when evaluating the performance of segment managers.
(CMA adapted).