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Rewarding production department employees with bonuses

A company rewards its production department employees for meeting budgeted cost levels by giving out bonuses. If the department's cost exceeds the budget, employees do not get a bonus. What problems might arise with such a plan?

Solution Preview

The concept of rewarding employees for containing costs is an excellent idea for helping a company to become more and more profitable. The bonuses represent a little bit of profit sharing to reward a job well done.

The first problem that can arise with this plan involves reward and punishment for costs that are beyond the control of the employee.

Example 1: A company makes gold jewelry and the production department includes costs for labor and materials. When the price of gold skyrocketed, as it ...

Solution Summary

In a 336 word solution, the bonus issue is addressed with three reasons. Each reason is supported with examples to explain the consequences.