Fresh Foodie operates two restaurant services, one in City X and one in City Y. The semiannual bonus plan for each restaurant’s president has three components:

a. Profitability performance. Add 1% of operating income.

b. Average customer’s waiting time. Add \($45,000\) if the average waiting time for a customer to get the service after the order placed is less than 12 minutes. If average customer waiting time is more than 12 minutes, add nothing.

c. Customer satisfaction performance. Deduct \($50,000\) if customer satisfaction (measured using a survey asking customers about their satisfaction with the quality of food and their overall satisfaction with the service of Fresh Foodie) falls below 65 on a scale from 0 (lowest) to 100 (highest). No additional bonus is awarded for satisfaction scores of 65 or more.Semiannual data for 2016 for the City X and City Y restaurants are as follows:

1. Compute the bonuses paid in each half year of 2016 to the City X and the City Y restaurant presidents.
2. Discuss the validity of the components of the bonus plan as measures of profitability, waiting time performance, and patient satisfaction. Suggest one shortcoming of each measure and how it might be overcome (by redesign of the plan or by another measure).
3. Why do you think Fresh Foodie includes measures of both operating income and waiting time in its bonus plan for the presidents? Give one example of what might happen if waiting time was dropped as a performance measure.

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City X Operating income Average waiting time Customer satisfaction City Y Operating income Average waiting time Customer satisfaction January-June July-December $11,100,000 $10,850,000 10 minutes 74 $9,120,000 18 minutes 60 15 minutes 67 $8,500,000 9 minutes 70