Performance Evaluation and Risk Aversion Heartwood Furniture Corporation has a line of sofas marketed under the name NightTime Sleepers. Heartwood management is considering several com- pensation packages for Amy Johnson, NightTime's general manager. Amy's duties include making all investing and operating decisions for NightTime.
Required
1. Amy is risk-neutral and prefers to receive the maximum reward for her hard work. Do you recommend compensation based on flat salary, an ROI-based bonus, or a combination of both? Why?
2. If Amy does not make investing decisions for NightTime, is ROI still a good performance measure? If so, then explain why. If not, suggest an alternative.