Isbn 978-0-07-352694-2the question is 20-38 on page

Reference no: EM13581496

ISBN: 978-0-07-352694-2The question is # 20-38 on page 920-921Ramon Martinez is the general manager of Classic Inn, a local mid-priced hotel with 100 rooms. His job objectives include providing resourceful and friendly service to the hotel%u2019s guests, maintaining an 80 percent occupancy rate, improving the average rate received per room to $58 from the current $55, and achieving a savings of 5 percent on all hotel costs. The hotel%u2019s owner, a partnership of seven people who own several hotels in the region, want to structure Ramon%u2019s future compensation to objectively reward him for achieving these goals. In the past, he has been paid an annual salary of $42,000 with no incentive pay. The incentive plan the partners developed has each of the goals weighted as follows:

Measure Percent of total Responsibility
Occupancy Rate 40%
opeating within 95% of expense budget 25%
Average Room Rate 35%

If Ramon achieves all of these goals, the partners determined that his performance shouldmerit a bonus of $23,000. The partners also agreed that his salary would be reduced to $60,000because of the addition of the bonus.

The Goal measures used to compensate Ramon are as follows:
Occupancy Goal: 29,200 room-nights=80% occupancy rate*100 rooms*365 days
Compensation: 40% weight*$23,000 target rewards= $9,000. $9,2000/29200= $0.315 per room night
Expense goal: 5% savings,
Compensation: 25% weight*$23,000 target reward= $5,750, $5,750/5= $1,150 for each percentage point saved
Room Rate Goal: $3 rate increase

Compensation: 35% weight *$23,000 Target reward=$8,050, $8050/300= $26.83 per each cent increase

Ramon%u2019s new compensation plan will thus pay him a $30,000 salary plus 30 cents per room-night sold plus $1,150 for each percentage point saved in the expense budget plus $26.83 per each cent increase in average room rate.

Required

1. Based on this plan, what will Ramons total compensation be if his performance results are

a. 30,000 room-nights, 5 percent saved, $3.00 rate increase?

b. 25,000 room-nights, 3 percent saved, $1.15 rate increase?

c. 28,000 room-nights, 0 saved, $1.00 rate increase?

2.Comment on the expected effectiveness of this plan

Reference no: EM13581496

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