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Valley Commercial Bank motivational incentive formulas

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:

a. What are the motivational advantages and disadvantages of each of the four incentive formulas?

b. What are the advantages and disadvantages of the incentive formula approach to motivation revenue growth.

Solution Preview

There isn't much difference in the four formulas, just magnitude.

A. The advantage of the formulas are that the managers will focus on new sales, new clients, new projects and be aggressive about it. The disadvantage is that ...

Solution Summary

The expert examines Valley Commercial Bank motivational incentive formulas.

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