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While the compensation system eliminated many shortcomings of previous programs, unit managers now protested that it was much too complicated. Moreover, complaints about undue subjectivity and dependence on volume patterns were heard anew. Thereafter he would be rated monthly by the regional operations staff on six factors: quality, service, cleanliness, training ability, volume, and profit.

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Each factor would be rated 0 for unsatisfactory, 1 for satisfactory, and 2 for outstanding. Plan B: After receiving the base salary suggested by the range system in his first year as manager, the person would be placed on a draw against commission. Plan D: Based on the size of the management team and the volume of the store, a predetermined lump sum would be allocated for management salaries. Individual performance as evaluated by the regional operations staff would determine the percentage of the total allocation to be received by each team member.

The total amounts that would be available are shown in Exhibit I. A senior officer of the company summarized his feelings about the compensation dilemma in this way:. Just meeting the payroll was an accomplishment. Later, as we became better known and began to grow, we could concentrate on perfecting our operations. We started the first comprehensive training program for fast-food service in the industry. What are the relative benefits of increased volume and reduced costs? Who has greater discretionary control over these factors, the unit manager or the corporate-level executive?

Which of the four plans best recognizes this fact? Are there any important factors which the company does not appear to have considered?


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Are there other, more appealing alternatives? What follows is a synthesis of their written remarks, with quotations from them.

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The design of any management compensation plan starts with an understanding of the key elements of a successful reward system, followed by establishment of objectives for it. Kenneth E. Foster, manager of compensation and benefits at Xerox Corporation, states the purpose of a good compensation package:. Foremost, the reward system must be meaningful to the recipients.

They must also see it as equitable and its financial outcomes and rewards as within their power to control. Rewards should be closely linked in time to the performance on which they are based. Finally, management must be willing to listen to employees and respond with constructive change when necessary. Considering the nature of the business and considering the income level of the employees involved, risk taking should not become an issue of primary focus.

There are many measures of managerial performance return on investment and market share, for example. Often these measures conflict, and so one or more performance indicators must be emphasized at the expense of the others. Because of the operating leverage in the fast-food business, considerable emphasis is rightly placed on higher sales.


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  • Given this cost structure, the leverage inherent in sales gains is apparent. Plans are constantly changing because of general business conditions, shifts in management philosophy, competitive pressures, participant feedback, and modifications in the structure and objectives of the organization. The participant has no control over many of these, and yet they affect his economic well-being.

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    Our commentators see two principal possibilities—level of pay and method of pay. As a preface to his comments on the case, Donald M. Finn, store management compensation manager of the J. This assumption is important because expressed dissatisfaction with pay plans may be just a symptom. Often the real problem is not the method of pay but a sense of being underpaid. The absence of clear communication obviously can undermine even the best-laid business plans, and compensation programs are no exception.

    George M. Tidball, president of Keg Restaurants, Ltd. Joe W. Rogers, chairman of the board of Waffle House a restaurant chain based in Decatur, Georgia , agrees. All areas of judgment by a friendly or unfriendly supervisor should be absent in a bonus system. Unit manager control: Before deciding where the unit manager should direct his efforts, one must examine the factors he can influence. He has no influence over price levels of the products served or over such major items as wage rates and the cost of meat and paper.

    The degree to which the problems are solved by the next system the company devises will in large measure determine its chance of success. The problems are as follows:. Plan A: According to our commentators, Plan A goes the furthest of the four plans under consideration toward meeting the objections raised against former plans, while also recognizing important corporate goals. For Plan A to work, our commentators say, the subjective rating feature must be strengthened. To minimize accusations of inadequate evaluations by the regional staff, Finn would develop standards and criteria for each rating factor.

    Those that require the setting of objectives by supervisors—profit and volume, for example—should be applied consistently throughout a region. The commentators agree that Plan A is a bit complicated, but they believe that certain modifications and good communications should make it understandable to participants. It rewards profit and volume and gives little room for subjective intervention by the regional staff in determining incentive pay. Only Rogers likes the elimination of QSC as a factor; the others are skeptical of the excessive dependence on the factors of profit and volume.

    Both Tidball and Finn note the potential hazards of extreme windfalls and downside risks disproportionate to store management ability, and Foster even doubts the appropriateness of such motivation for the managers in question.