Valley Commercial Bank wants to reward its branch bank managers for exceeding revenue growth targets and is considering alternative incentive formulas that award bonuses as a percentage of salary for each percentage point that actual revenue growth exceeds the target as follow.
FORMULA PARAMETER ALTERNATIVE 1 ALTERNATIVE 2
Revenue growth target 5% 10%
Bonus percentage 4 percentage points 8 percentage points
Require:
Q1. What are the motivational advantages and disadvantages of each of the four incentive formulas?
Q2. What are the advantages and disadvantages of the incentive formula approach to motivation revenue growth.