Alpha Company, a project-driven organization, pays its department managers a quarterly bonus that is dependent on two factors: the departmental overhead rate and direct labor dollars. The exact value of the bonus is proportional to how much these two factors are underrun. Department man-hours are priced out against the department average, which does not include the department manager’s salary. His salary is included under his departmental overhead rate, but he does have the option of charging his own time as direct labor to the projects for which he must supply resources.
What do you think of this method? Is it adequate inducement for a functional manager to control resources more effectively? How would you feel, as a project manager, knowing that the functional managers got quarterly bonuses and you got none?