Employee bonuses at American InterConnect (AI), a large communications firm, depend on meeting a number of targets, one of which is a revenue target. Some bonus is awarded to the group if it meets or exceeds its target revenue for the year. The bonus is also tied to meeting targets for earnings, employee satisfaction, hiring goals, and other specific objectives tailored to the group or manager.
AI has several product development groups within the firm. Each is assigned the task of developing new products for specific divisions within the firm. Product developers, primarily engineers and marketing people, are assigned to a new product development team to develop a specific new product. Afterward, they are assigned to new development teams for a different division or are re-assigned back to their former departments. Sometimes they become product managers for the new product. Product development teams take roughly 18 months to develop and design the product. For example, Network Solutions is one group of products AI sells. The employees in the product development group for Network Solutions receive part of their bonus based on whether Network Solutions achieves its revenue target for that year.
It typically takes AI three years from the time a product development team is formed until the product reaches the market. Once a new product idea is identified and researched, a prototype must be built and tested. Finally it is introduced. Another 18 months is required for approval, manufacturing design, further testing, and marketing. These functions are performed after the product development team has been reassigned.

Analyze the incentives created by basing a portion of each current product developer’s bonus on revenues for products now being sold.

  • CreatedDecember 15, 2014
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