Question: A company would like to evaluate two incentive schemes that take effect once the worker exceeds standard performance. In the first case the benefits are

A company would like to evaluate two incentive schemes that take effect once the worker exceeds standard performance. In the first case the benefits are split 50/50 between the worker and the company. In the second case, the worker receives a kicker up to 120% earnings and then maintains level performance up to 150% , after which all of the earnings go to the worker.

a. Plot the normalized unit labor costs for each scheme.

b. Derive the equations for worker earnings and unit labor costs for each scheme.

c. Find the point at which the two plans break even.

d. Which do you think the company would prefer?

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