Project #46048 - Personnel Economics

 

You are a consultant and have been hired by a national chain of restaurants to help advise the evaluation of two categories of workers: the CEO and the managers of the individual restaurants. The national company controls almost all aspects of the individual restaurants. It sets the menus, recipes, specials, pricing, controls advertising, gets to sign off on community involvement, has a say in hiring and provides a script for the hostesses and waiters to use. The chain has been doing well although sales have been hurt in the past year because of a recession and fewer people are eating out. Some cities have seen a new chain restaurant moving in and are facing considerable competition for customers

(1) For the evaluation measure, you are deciding between (1) firm value; (2) accounting profit; (3) sales revenue; (4) a measure of traffic in the restaurants (meals sold); and (5) customer satisfaction surveys. Which measure or measures would you use for the CEO? What about the managers? Why would you select that measure? Make sure to consider controllable and uncontrollable risk, distortion and the match between the measure and the job design.

(2) You are now asked to design a compensation strategy for the managers of the individual restaurants. You are deciding between (1) a high base salary and profit-sharing based on how well the corporation as a whole fares and (2) a low base salary with a large bonus based on performance. You are trying to motivate them to work hard, to ensure quality meals and service, and to keep profit high. Which pay scheme do you advise? How will that scheme accomplish the goal of motivating the manager to focus on both quality and profit? Consider optimal incentives, distortion and intrinsic motivation.

(3) You are also asked to design a compensation strategy for upper level management. These workers can earn $125,000 per year at other jobs. You can either suggest paying them $125,000 in salary or paying them $75,000 in salary and $50,000 worth of stock options (as valued on the open market). Which would you recommend? (Be detailed in your answer.)

(4) Finally, you need to suggest a benefits package to offer the workers. Would you offer each of the following benefits? Explain

A. Health Insurance. Costs the firm $1000 per month to provide and would cost a worker $1000 to buy on the open market.

B. Meals provided in the restaurants shortly before or after the big rush.
C. Monthly bus passes. Costs the firm $50 per month to provide and the workers value it at $25. 

Subject Business
Due By (Pacific Time) 11/06/2014 12:00 pm
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