Kristin Helmud is the general manager of Highland Inn, a local mid-priced hotel with 100 rooms. Her job objectives include providing resourceful and friendly service to the hotel’s guests, maintaining an 80% occupancy rate, improving the average rate received per room to $88 from the current $85, achieving a savings of 5% on all hotel costs, and reducing energy use by 10% by carefully managing the use of heating and air conditioning in unused rooms and by carefully managing the onsite laundry facility, among other means. The hotel’s owner, a partnership of seven people who own several hotels in the region, wants to structure Kristin’s future compensation to objectively reward her for achieving these goals. In the past, she has been paid an annual salary of $72,000 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 (also reflects guest service quality) 20% Operating within 95% of expense budget 30 Average room rate 30 Energy use 20 100% The partners have proposed that if Kristin achieves all of the goals, his performance would merit a bonus of $30,000, while Kristin’s salary will need to be reduced to $60,000 because of the opportunity for earning a bigger total compensation. With these parameters, Kristin has been asked to prepare a bonus proposal for the Owners. After some initial work, Kristin has come up with the following baseline data: Occupancy goal: 80% occupancy rate × 100 rooms × 365 days = 29,200 rooms Compensation: 20% weight × $30,000 target bonus = $6,000 $6,000 ÷ 29,200 = $0.2055 per room-night Expense goal: 5% savings Compensation: 30% weight × $30,000 target bonus = $9,000 $9,000 ÷ 5 = $1,800 for each percentage point saved Room rate goal: $3 rate increase Compensation: 30% weight × $30,000 target bonus = $9,000 $9,000 ÷ 300 = $30.00 for each cent increase Energy use goal: 10% savings Compensation: 20% weight × $30,000 target bonus = $6,000 $6,000 ÷ 10 = $600 for each percentage point saved Kristin’s new compensation plan will thus pay her a $60,000 salary plus $30,500 The minimum potential compensation would be $60,000 and the maximum potential compensation for Kristin would be $60,000 + $30,500 = $90,500 The minimum potential compensation would be $60,000 and the maximum potential compensation for Kristin would be $60,000 + $30,000 = $90,000. Kristin presented this proposal breakdown (as above) to the ownership group. While the Ownership group was supportive, they have asked him to present three different outcome possibilities and calculate the total compensation (wage & bonus). In addition, Kristin has been asked by the Ownership to perform a business environmental scan and document how his bonus compensation will make the hotel more competitive or are there more improvements that can be considered. Kristin has prepared for consideration, the following outcomes: i). status quo ii). 30,000 room-nights, 5% expense savings, $3.00 rate increase, and 8% reduction in energy use. iii). 28,000 room-nights, 3% expense savings, $1.00 rate increase, and 2% reduction in energy use. List four alternatives with 3 pros and cons for each that Kristin can follow for this case study
Kristin Helmud is the general manager of Highland Inn, a local mid-priced hotel with 100 rooms. Her job objectives include providing resourceful and friendly service to the hotel’s guests, maintaining an 80% occupancy rate, improving the average rate received per room to $88 from the current $85, achieving a savings of 5% on all hotel costs, and reducing energy use by 10% by carefully managing the use of heating and air conditioning in unused rooms and by carefully managing the onsite laundry facility, among other means. The hotel’s owner, a
|
Measure |
Percent of Total Responsibility |
|
Occupancy rate (also reflects guest service quality) |
20% |
|
Operating within 95% of expense budget |
30 |
|
Average room rate |
30 |
|
Energy use |
20 |
|
|
100% |
The partners have proposed that if Kristin achieves all of the goals, his performance would merit a bonus of $30,000, while Kristin’s salary will need to be reduced to $60,000 because of the opportunity for earning a bigger total compensation. With these parameters, Kristin has been asked to prepare a bonus proposal for the Owners. After some initial work, Kristin has come up with the following baseline data:
Occupancy goal: 80% occupancy rate × 100 rooms × 365 days = 29,200 rooms Compensation: 20% weight × $30,000 target bonus = $6,000 $6,000 ÷ 29,200 = $0.2055 per room-night
Expense goal: 5% savings
Compensation: 30% weight × $30,000 target bonus = $9,000 $9,000 ÷ 5 = $1,800 for each percentage point saved
Room rate goal: $3 rate increase
Compensation: 30% weight × $30,000 target bonus = $9,000 $9,000 ÷ 300 = $30.00 for each cent increase
Energy use goal: 10% savings
Compensation: 20% weight × $30,000 target bonus = $6,000 $6,000 ÷ 10 = $600 for each percentage point saved
Kristin’s new compensation plan will thus pay her a $60,000 salary plus $30,500 The minimum potential compensation would be $60,000 and the maximum potential compensation for Kristin would be $60,000 + $30,500 = $90,500
The minimum potential compensation would be $60,000 and the maximum potential compensation for Kristin would be $60,000 + $30,000 = $90,000. Kristin presented this proposal breakdown (as above) to the ownership group. While the Ownership group was supportive, they have asked him to present three different outcome possibilities and calculate the total compensation (wage & bonus). In addition, Kristin has been asked by the Ownership to perform a business environmental scan and document how his bonus compensation will make the hotel more competitive or are there more improvements that can be considered. Kristin has prepared for consideration, the following outcomes:
i). status quo
ii). 30,000 room-nights, 5% expense savings, $3.00 rate increase, and 8% reduction in energy use.
iii). 28,000 room-nights, 3% expense savings, $1.00 rate increase, and 2% reduction in energy use.
List four alternatives with 3 pros and cons for each that Kristin can follow for this case study
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