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Puente Hills Toyota Case Study

Unformatted text preview: Assignment 7-2: 1 Puente Hills Toyota Assignment 7-2: Puente Hills Toyota Puente Hills Toyota Background and History Hitchcock Automotive Services owns Puente Hills Toyota (PHT), which is a privately held company. In addition to, Hitchcock Automotive Services owning Puente Hills Toyota, they also own two other Toyota dealerships, a Volkswagen, Ford, Hyundai, and BMW dealership, all located in California. Puente Hills Toyota was a large Toyota dealership with about $85 million in annual sales. PHT employs around 145 employees and was awarded several excellent Assignment 7-2: 2 Puente Hills Toyota performance awards, including the Toyota’s President Award for overall excellence for the past 13 years (Merchant & Van der Stede, 2012). The dealership’s organizational structure was similar to those of others within the industry, other than they combined the new and used vehicle sales department. This organizational structure worked with Hitchcock Automotive Service’s philosophy of keeping manufacturers and customers happy. (Merchant & Van der Stede, 2012) Performance Measurement and Incentive Systems PHT has a very competitive performance measurement and incentive system. They make sure their employees are well compensated for their hard work and dedication to the company. PHT has a performance and incentive program that is based on the CSI an ESI. Even though, not well defined, employees who perform well based on the CSI and ESI are entitled to semimonthly and monthly bonuses. All of the bonuses offered are formula based, for example, the sales representative and the assistant sales manager earn 20% and 7% of the gross profit for every deal (Merchant & Van der Stede, 2012). This ensures the sales representative and sales manager are motivated to sell as many cars as possible, within a good margin. PHT’s incentive system is good because the bonuses are based on the departmental profit, as this encourages an innovative way of thinking. Employees understand, the better they do their job, the higher their monthly income will be. A disadvantage to PHT’s performance and incentive system is they would be required to pay a large bonus to the employees, even if PHT is losing money. Under the current system, as long as the sales representatives are making sales, they are entitled to their bonuses, which in turn could hurt PHT if they are losing money. There are also no bonuses for teamwork. For example, if a service department technician refers a customer to a sales representative to purchase a new more dependable car, that service technician does not receive any type of bonus Assignment 7-2: 3 Puente Hills Toyota for helping encourage a sale. PHT could look at implementing a teamwork bonus, which would help motivate employees to work together to complete a sale. Although, management would need to keep in mind when introducing a group incentive, that it does not place too much weight on the teammate’s contribution, otherwise it could have a negative effect (Lim & Hua, 2014). PHT has a very competitive and likable performance and incentive system in place. There are a couple of recommendations to be made. The first being with the customer surveys. The sales representatives seem to cheat the system when it comes time to ask customers to complete the surveys. RHT could hire an independent company to handle all surveys. Then based on the total average score, offer a bonus incentive. Hiring an independent company to handle the surveys also provides management with a good performance measure, it allows management to be sure the sales representatives and the service technicians are meeting customers’ expectations. In addition, PHT could change from a turnover based bonus system to a profit based system, this way if there is no company profit then there would be no bonuses awarded. Furthermore, they could add more non-financial performance measures; this would encourage employees to complete all of their job duties and requirements besides selling a car. Lastly, PHT could implement a teamwork-based bonus, to ensure all employees involved in the sale are compensated. The performance measures and incentive system incorporated within PHT is very effective. PHT’s employees strive to meet goals and company expectations. PHT only needs to make a few changes to their system in order to improve it. PHT can hire an independent company to handle surveys; they can change their bonus system to a profit system, incorporate more non-financial measurements for their employees, and offer team-based incentives to help strengthen their performance and incentive system. The above statement proves to be strong, as Assignment 7-2: 4 Puente Hills Toyota PHT has a strong performance and incentive system, and by integrating, the above suggestions would only make it stronger and more competitive. Reward and Performance An advantage of the linear system is managers will not fast engage in earnings management, or save sales for a future period to better reach their goals. In addition, utilizing the linear system helps prevent game playing from occurring. A disadvantage of the linear system is it could remove some of the motivational effects of performance targets. This could occur since PHT pays bonuses from the profits earned even if performance is poor. However, offering a commission for sales representatives is often enough motivation to perform above expectations. According to Kishore, Rao, Narasimhan, and John (2013), bonus plans provide a strong incentive for salespeople to reach the quota, but it also encourages them to minimize their efforts thereafter, whereas a commission plan provides an incentive to keep working hard even after reaching the quota. In conclusion, the linear system is probably the best for PHT as they gain the benefits of the linear incentives through reducing the opportunity for gaming while still providing strong motivation to meet expectations. Conclusion PHT is a very well organized company. They offer a strong competitive compensation package to their employees and it shows. Based on the number of awards they have received from Toyota, it shows their employees are committed and dedicated to them. PHT should only make a few minor adjustments to make their performance and incentive system even stronger, otherwise management did a great job setting up such a strong and foolproof system. Assignment 7-2: 5 Puente Hills Toyota References Kishore, S., Rao, R. S., Narasimhan, O., & John, G. (2013). Bonuses versus commissions: A field study. Journal of Marketing Research 50, (3), 317-333. Lim, N., & Hua., C. (2014). When do group incentives for salespeople work?. Journal of Marketing Research, 51(3), 320-334. Merchant, K., & Van der Stede, W. (2012). Management control systems: Performance measurement, evaluation, and incentives. Harlow, England: FT Prentice Hall. Assignment 7-2: 6 Puente Hills Toyota ...
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Case report: Puente Hills Toyota September 2014, Accounting and Control, Radboud Universiteit Nijmegen Authors: Cees Schonenberg 0709565 Laura Elferink 4036662 Wytse Versantvoort 4055489 Case report: Puente Hills Toyota September 2014, Accounting and Control, Radboud Universiteit Nijmegen Authors: Cees Schonenberg 0709565 Laura Elferink 4036662 Wytse Versantvoort 4055489 Introduction This report contains a short analysis of the case of Puente Hills Toyota (PHT). PHT is a department of a car dealership (Hitchcock Automotive Services) which includes 3 core businesses: selling new cars, selling used cars and providing technical services. The departments of PHT are all considered as a profit centre, which means that most of the costs (such as salaries and advertising costs) were allocated to the departments itself, except for some general costs, such as insurance payments. Moreover, PHT is one of the leading dealerships in Hitchcock Automotive Services. It has high quality of service and the profits are excellent. It has received multiple awards for excellent performance. To achieve this high level of quality, PHT needs to mainly satisfy two constituencies: the manufacturers and the costumers. The manufacturers audit the dealer’s practices regularly. When Costumer Satisfaction Index (Hereinafter: CSI) ratings are high the manufacturers will allocate a larger number of their best selling model to the better performing dealerships. Therein against when CSI ratings fall below acceptable levels, manufactures might change dealerships. Keeping the costumer satisfied is – of course – the key to survival and thus PHT put a lot of effort in keeping the customers satisfied. CSI is a tool used to measure the customers satisfaction by collecting and analysing data of surveys which is handed to the costumers after they received service or bought a car. The CSI also had an influence on the bonus component of the salary of employees. This analysis will discuss the performance management and the incentive system at PHT. It will first discuss the incentive system, after which the advantages and disadvantages of the reward system are discussed. This analysis concludes with a discussion about the effect of incentive pay on employee performance. Performance measurement and incentive systems The performance measurement at Puente Hills Toyota is based on bonuses. These incentives are given as a percentage of salary of the employees. This percentage differs per function and per department. For example, a sales men could receive a 8-20% commission on top of his base salary if he successfully sold a car. Within the service/body shop department, mechanics were paid per flag hour: the normal time it would take to do a reparation. The best mechanic at PHT could do 6 flag hours in one real hour. Eventually, the bonuses would exceed the base salary by 200-300%. Furthermore, management stated that the CSI has an influence on the bonus component, but in reality, it could only have a negative impact if the index was too low. Fortunately for the employees of PHT, this hasn’t occurred yet. Case report: Puente Hills Toyota September 2014, Accounting and Control, Radboud Universiteit Nijmegen Authors: Cees Schonenberg 0709565 Laura Elferink 4036662 Wytse Versantvoort 4055489 Introduction This report contains a short analysis of the case of Puente Hills Toyota (PHT). PHT is a department of a car dealership (Hitchcock Automotive Services) which includes 3 core businesses: selling new cars, selling used cars and providing technical services. The departments of PHT are all considered as a profit centre, which means that most of the costs (such as salaries and advertising costs) were allocated to the departments itself, except for some general costs, such as insurance payments. Moreover, PHT is one of the leading dealerships in Hitchcock Automotive Services. It has high quality of service and the profits are excellent. It has received multiple awards for excellent performance. To achieve this high level of quality, PHT needs to mainly satisfy two constituencies: the manufacturers and the costumers. The manufacturers audit the dealer’s practices regularly. When Costumer Satisfaction Index (Hereinafter: CSI) ratings are high the manufacturers will allocate a larger number of their best selling model to the better performing dealerships. Therein against when CSI ratings fall below acceptable levels, manufactures might change dealerships. Keeping the costumer satisfied is – of course – the key to survival and thus PHT put a lot of effort in keeping the customers satisfied. CSI is a tool used to measure the customers satisfaction by collecting and analysing data of surveys which is handed to the costumers after they received service or bought a car. The CSI also had an influence on the bonus component of the salary of employees. This analysis will discuss the performance management and the incentive system at PHT. It will first discuss the incentive system, after which the advantages and disadvantages of the reward system are discussed. This analysis concludes with a discussion about the effect of incentive pay on employee performance. Performance measurement and incentive systems The performance measurement at Puente Hills Toyota is based on bonuses. These incentives are given as a percentage of salary of the employees. This percentage differs per function and per department. For example, a sales men could receive a 8-20% commission on top of his base salary if he successfully sold a car. Within the service/body shop department, mechanics were paid per flag hour: the normal time it would take to do a reparation. The best mechanic at PHT could do 6 flag hours in one real hour. Eventually, the bonuses would exceed the base salary by 200-300%. Furthermore, management stated that the CSI has an influence on the bonus component, but in reality, it could only have a negative impact if the index was too low. Fortunately for the employees of PHT, this hasn’t occurred yet. Because of the fact that the incentives made up to 300% of an employee’s salary, employees were highly motivated to sell a car or doing as much reparations as possible. This doesn’t always result in high quality: the mechanics could be incentivised to cut corners and the sales personnel would promise a higher value for a trade-in car to get a costumer to buy a new one. A first recommendation to the (bonus) system of PHT would be to reduce the incentives of the employees of PHT and increase their base salaries. This would less incentive the employees to do everything for the bonus. Furthermore, the CSI should play a more important role in the incentive system of PHT. Keeping the customers satisfied should be the number one priority for the employees of PHT. This will be a more valuable strategy over the long term. Advantages and disadvantages First, the definition of performance needs to be addressed, because in the definition you can see the first caveat with this kind of incentives. The definition Puente Hills Toyota uses is: ‘the higher the performance, the larger the bonuses that are paid’ This means that everything an employee does, he gets an bonus over. This can have different influences on employees. First, and probably the intention of the incentive, an employee works as hard as he can. This will result in a large bonus for the employee, but also a lot of work is done for Toyota. So if many employees are encouraged to work hard, Toyota will have a high production and can serve many customers. Not every employee will work as hard as they can, but you assume that every one of them is encouraged to work harder as normal because of the bonus. There are also some downsides of this incentive system. An employee could think at a certain point that he has earned enough for this period or set his own target for a certain salary. This point can be high enough to meet the goals of Toyota. So both of them are satisfied. It is also possible the employee works at a level under the goal of Toyota, so their production is lower as aimed for, but the employee still gets his bonus and goes home satisfied. Another downside of this system can be that employees are going to cut corners. In this way employees can get more work done and get a higher bonus. The problem is the quality they deliver. Through cutting corners the quality of the products will be lower. This will result in a lower satisfaction of the customer. This can be explained by an example used in the book. One of the jobs a service technicians have to do is the Electronic Engine Control(EEC) repair. The time needed for this job was set at 48 minutes. One element of this job is the test-drive, this takes the most time. If they did Case report: Puente Hills Toyota September 2014, Accounting and Control, Radboud Universiteit Nijmegen Authors: Cees Schonenberg 0709565 Laura Elferink 4036662 Wytse Versantvoort 4055489 Introduction This report contains a short analysis of the case of Puente Hills Toyota (PHT). PHT is a department of a car dealership (Hitchcock Automotive Services) which includes 3 core businesses: selling new cars, selling used cars and providing technical services. The departments of PHT are all considered as a profit centre, which means that most of the costs (such as salaries and advertising costs) were allocated to the departments itself, except for some general costs, such as insurance payments. Moreover, PHT is one of the leading dealerships in Hitchcock Automotive Services. It has high quality of service and the profits are excellent. It has received multiple awards for excellent performance. To achieve this high level of quality, PHT needs to mainly satisfy two constituencies: the manufacturers and the costumers. The manufacturers audit the dealer’s practices regularly. When Costumer Satisfaction Index (Hereinafter: CSI) ratings are high the manufacturers will allocate a larger number of their best selling model to the better performing dealerships. Therein against when CSI ratings fall below acceptable levels, manufactures might change dealerships. Keeping the costumer satisfied is – of course – the key to survival and thus PHT put a lot of effort in keeping the customers satisfied. CSI is a tool used to measure the customers satisfaction by collecting and analysing data of surveys which is handed to the costumers after they received service or bought a car. The CSI also had an influence on the bonus component of the salary of employees. This analysis will discuss the performance management and the incentive system at PHT. It will first discuss the incentive system, after which the advantages and disadvantages of the reward system are discussed. This analysis concludes with a discussion about the effect of incentive pay on employee performance. Performance measurement and incentive systems The performance measurement at Puente Hills Toyota is based on bonuses. These incentives are given as a percentage of salary of the employees. This percentage differs per function and per department. For example, a sales men could receive a 8-20% commission on top of his base salary if he successfully sold a car. Within the service/body shop department, mechanics were paid per flag hour: the normal time it would take to do a reparation. The best mechanic at PHT could do 6 flag hours in one real hour. Eventually, the bonuses would exceed the base salary by 200-300%. Furthermore, management stated that the CSI has an influence on the bonus component, but in reality, it could only have a negative impact if the index was too low. Fortunately for the employees of PHT, this hasn’t occurred yet. Because of the fact that the incentives made up to 300% of an employee’s salary, employees were highly motivated to sell a car or doing as much reparations as possible. This doesn’t always result in high quality: the mechanics could be incentivised to cut corners and the sales personnel would promise a higher value for a trade-in car to get a costumer to buy a new one. A first recommendation to the (bonus) system of PHT would be to reduce the incentives of the employees of PHT and increase their base salaries. This would less incentive the employees to do everything for the bonus. Furthermore, the CSI should play a more important role in the incentive system of PHT. Keeping the customers satisfied should be the number one priority for the employees of PHT. This will be a more valuable strategy over the long term. Advantages and disadvantages First, the definition of performance needs to be addressed, because in the definition you can see the first caveat with this kind of incentives. The definition Puente Hills Toyota uses is: ‘the higher the performance, the larger the bonuses that are paid’ This means that everything an employee does, he gets an bonus over. This can have different influences on employees. First, and probably the intention of the incentive, an employee works as hard as he can. This will result in a large bonus for the employee, but also a lot of work is done for Toyota. So if many employees are encouraged to work hard, Toyota will have a high production and can serve many customers. Not every employee will work as hard as they can, but you assume that every one of them is encouraged to work harder as normal because of the bonus. There are also some downsides of this incentive system. An employee could think at a certain point that he has earned enough for this period or set his own target for a certain salary. This point can be high enough to meet the goals of Toyota. So both of them are satisfied. It is also possible the employee works at a level under the goal of Toyota, so their production is lower as aimed for, but the employee still gets his bonus and goes home satisfied. Another downside of this system can be that employees are going to cut corners. In this way employees can get more work done and get a higher bonus. The problem is the quality they deliver. Through cutting corners the quality of the products will be lower. This will result in a lower satisfaction of the customer. This can be explained by an example used in the book. One of the jobs a service technicians have to do is the Electronic Engine Control(EEC) repair. The time needed for this job was set at 48 minutes. One element of this job is the test-drive, this takes the most time. If they did not do the test-drive the job could be done in less than 15 minutes. So a lot of more work could be done and a higher bonus would be received. But without the test-drive they could not check if the problem is fixed. So to prevent this behaviour they had to install two control systems. First, the time spend on a job had to be noted. So if the time spend on a job was to low a supervisor asked for an explanation. Second, the number of ‘re-checks’ were tracked. Specific the ones that were needed because the problem was not fixed the first time. So if you want to prevent that employees are cutting corners control systems are required. This will also cost time and money. At Toyota the incentive pays are not the same for every job. For example in the sales department, the salesmen gets a commission of 20% and an assistant sales manager 7%. So a salesmen has a bigger incentive to get his works done compared to an assistant. Of course this difference is explained by the responsibility of the jobs. The advantage of this difference is that an assistant is stimulated to work hard so he will get promoted to salesmen and gets the bigger commission. So employees in both jobs are stimulated to have high sale numbers. Another disadvantage with this bonus program is that difficulties could arise with assigning the bonus to individual employees. When groups of employees are working at one feature of a product. How do you measure the individual amount of work an employee has done for this product or sale. Summarized the advantage of the PHT performance bonus over a budget goal is that every employee works efficient for every activity and delivers high quantities because he or she feels directly rewarded with a bonus, which is not the case with a budget goal. With a budget goal the bonus feels more or less indirect. Another advantage of the PHT performance bonus is that the company only pays high salaries when making big profits. When there are low profits the company pays respectively low salaries. This reduce the companies risk of bankruptcy in hard times. A disadvantage of the PHT system compared to a budget goal is that a lot of extrinsic motivation is created, which means that in bad times people leave, because the only work for the money. It also means that the activities might be high efficient, because of the high quantity, but relatively low in quality. In this case that was showed by the problem of corner cutting, which led to low service quality. Another disadvantage are the high monitor costs. Employees are willing to put quantity over quality any time. Therefore they must be monitored in order to make sure that the quality is guaranteed. A final disadvantage is that the loyalty of the employees is to the money. Therefore they get lazy towards activity that helps the company instead of themselves. Activities like customer follow up are ‘forgotten’. Employees only have a short term vision. Case report: Puente Hills Toyota September 2014, Accounting and Control, Radboud Universiteit Nijmegen Authors: Cees Schonenberg 0709565 Laura Elferink 4036662 Wytse Versantvoort 4055489 Introduction This report contains a short analysis of the case of Puente Hills Toyota (PHT). PHT is a department of a car dealership (Hitchcock Automotive Services) which includes 3 core businesses: selling new cars, selling used cars and providing technical services. The departments of PHT are all considered as a profit centre, which means that most of the costs (such as salaries and advertising costs) were allocated to the departments itself, except for some general costs, such as insurance payments. Moreover, PHT is one of the leading dealerships in Hitchcock Automotive Services. It has high quality of service and the profits are excellent. It has received multiple awards for excellent performance. To achieve this high level of quality, PHT needs to mainly satisfy two constituencies: the manufacturers and the costumers. The manufacturers audit the dealer’s practices regularly. When Costumer Satisfaction Index (Hereinafter: CSI) ratings are high the manufacturers will allocate a larger number of their best selling model to the better performing dealerships. Therein against when CSI ratings fall below acceptable levels, manufactures might change dealerships. Keeping the costumer satisfied is – of course – the key to survival and thus PHT put a lot of effort in keeping the customers satisfied. CSI is a tool used to measure the customers satisfaction by collecting and analysing data of surveys which is handed to the costumers after they received service or bought a car. The CSI also had an influence on the bonus component of the salary of employees. This analysis will discuss the performance management and the incentive system at PHT. It will first discuss the incentive system, after which the advantages and disadvantages of the reward system are discussed. This analysis concludes with a discussion about the effect of incentive pay on employee performance. Performance measurement and incentive systems The performance measurement at Puente Hills Toyota is based on bonuses. These incentives are given as a percentage of salary of the employees. This percentage differs per function and per department. For example, a sales men could receive a 8-20% commission on top of his base salary if he successfully sold a car. Within the service/body shop department, mechanics were paid per flag hour: the normal time it would take to do a reparation. The best mechanic at PHT could do 6 flag hours in one real hour. Eventually, the bonuses would exceed the base salary by 200-300%. Furthermore, management stated that the CSI has an influence on the bonus component, but in reality, it could only have a negative impact if the index was too low. Fortunately for the employees of PHT, this hasn’t occurred yet. Because of the fact that the incentives made up to 300% of an employee’s salary, employees were highly motivated to sell a car or doing as much reparations as possible. This doesn’t always result in high quality: the mechanics could be incentivised to cut corners and the sales personnel would promise a higher value for a trade-in car to get a costumer to buy a new one. A first recommendation to the (bonus) system of PHT would be to reduce the incentives of the employees of PHT and increase their base salaries. This would less incentive the employees to do everything for the bonus. Furthermore, the CSI should play a more important role in the incentive system of PHT. Keeping the customers satisfied should be the number one priority for the employees of PHT. This will be a more valuable strategy over the long term. Advantages and disadvantages First, the definition of performance needs to be addressed, because in the definition you can see the first caveat with this kind of incentives. The definition Puente Hills Toyota uses is: ‘the higher the performance, the larger the bonuses that are paid’ This means that everything an employee does, he gets an bonus over. This can have different influences on employees. First, and probably the intention of the incentive, an employee works as hard as he can. This will result in a large bonus for the employee, but also a lot of work is done for Toyota. So if many employees are encouraged to work hard, Toyota will have a high production and can serve many customers. Not every employee will work as hard as they can, but you assume that every one of them is encouraged to work harder as normal because of the bonus. There are also some downsides of this incentive system. An employee could think at a certain point that he has earned enough for this period or set his own target for a certain salary. This point can be high enough to meet the goals of Toyota. So both of them are satisfied. It is also possible the employee works at a level under the goal of Toyota, so their production is lower as aimed for, but the employee still gets his bonus and goes home satisfied. Another downside of this system can be that employees are going to cut corners. In this way employees can get more work done and get a higher bonus. The problem is the quality they deliver. Through cutting corners the quality of the products will be lower. This will result in a lower satisfaction of the customer. This can be explained by an example used in the book. One of the jobs a service technicians have to do is the Electronic Engine Control(EEC) repair. The time needed for this job was set at 48 minutes. One element of this job is the test-drive, this takes the most time. If they did not do the test-drive the job could be done in less than 15 minutes. So a lot of more work could be done and a higher bonus would be received. But without the test-drive they could not check if the problem is fixed. So to prevent this behaviour they had to install two control systems. First, the time spend on a job had to be noted. So if the time spend on a job was to low a supervisor asked for an explanation. Second, the number of ‘re-checks’ were tracked. Specific the ones that were needed because the problem was not fixed the first time. So if you want to prevent that employees are cutting corners control systems are required. This will also cost time and money. At Toyota the incentive pays are not the same for every job. For example in the sales department, the salesmen gets a commission of 20% and an assistant sales manager 7%. So a salesmen has a bigger incentive to get his works done compared to an assistant. Of course this difference is explained by the responsibility of the jobs. The advantage of this difference is that an assistant is stimulated to work hard so he will get promoted to salesmen and gets the bigger commission. So employees in both jobs are stimulated to have high sale numbers. Another disadvantage with this bonus program is that difficulties could arise with assigning the bonus to individual employees. When groups of employees are working at one feature of a product. How do you measure the individual amount of work an employee has done for this product or sale. Summarized the advantage of the PHT performance bonus over a budget goal is that every employee works efficient for every activity and delivers high quantities because he or she feels directly rewarded with a bonus, which is not the case with a budget goal. With a budget goal the bonus feels more or less indirect. Another advantage of the PHT performance bonus is that the company only pays high salaries when making big profits. When there are low profits the company pays respectively low salaries. This reduce the companies risk of bankruptcy in hard times. A disadvantage of the PHT system compared to a budget goal is that a lot of extrinsic motivation is created, which means that in bad times people leave, because the only work for the money. It also means that the activities might be high efficient, because of the high quantity, but relatively low in quality. In this case that was showed by the problem of corner cutting, which led to low service quality. Another disadvantage are the high monitor costs. Employees are willing to put quantity over quality any time. Therefore they must be monitored in order to make sure that the quality is guaranteed. A final disadvantage is that the loyalty of the employees is to the money. Therefore they get lazy towards activity that helps the company instead of themselves. Activities like customer follow up are ‘forgotten’. Employees only have a short term vision. Discussion Incentives are a widely used mechanism to reduce agency problems in companies. It should reduce the shirking of the agent by making his financial reward dependable of his own actions. However, as can also be seen in this case, incentivising could also lead to cutting corners and making excess promises to customers. Thus, the central question in this discussion is as follows: Is incentive pay truly effortinducing? According to agency theory, incentivising helps the principal to positively influence the actions of the agent: with a bonus structure such as at PHT, you are incentivised to reach as many as possible reparations or car sales. The reason for this is that working hard for the organization is now both profitable for the employees as for PHT itself. However, financial rewards aren’t the only thing that keeps employees motivated and therefore working hard. There are a lot of aspects regarding the motivation of employees. All of which could have an influence on the effort of work. High performance bonuses increase extrinsic motivation which means that employees are in it for the money. This does not have to be a problem as long as the company is making big profits and the employees are well monitored. Therein against when the company is facing tough times, employees will leave the company, because their loyalty is to the money. One can argue that this bonus system only works short term and for companies where high employee turnovers are not a problem.

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