Case

Learning Outcomes

$1.$

Understand the difference between group and individual incentive programs.

$2.$

Explain the advantages and disadvantages of an incentive program.

$3.$

Learn how to calculate incentive payments.

$4.$

Understand how incentive programs can be used to drive desired performance.

Background

Alpine Valley Skis is a fictional family$-$owned manufacturer of high$-$quality skis in the Northeastern United

States. Their skis are sold at various retail stores throughout the United States. The company is

headquartered in Augusta, Maine and they have a total of $25$ full$-$time employees. Alpine Valley Skis prides

itself on the quality of the skis they produce, and their product is highly sought after by experienced and

professional skiers. Last year$$s revenues were listed at USD $5,000,000.$

The company$$s president has noticed a significant drop in the number of skis that are passing their stringent

quality tests each week. Second quarter projections are indicating that the company may not meet its

operating expense for the fiscal year. This is worrisome to the executive leadership team and is directly

affecting the company$$s profitability, reputation, and continued success. They may be forced to lay off

employees or to shut down the production facility for a certain number of months. Currently, the company

earns a gross profit of USD $25\mathrm{.}50$ for each quality ski they produce and sell.

As a way to improve the number of quality skis produced each week, the president wants to implement a

Quality Skis Incentive Program with the staff that produce and fabricate the skis. He wants to incentivize these

employees to have a vested interest in the company and is willing to share a portion of the profits with them if

they meet certain productivity quotas each week.

There are five full$-$time employees who work on the production line fabricating skis. They work a standard

$8-$hour work shift per day. Historical data indicates that an average employee should be able to produce at

least $30$ quality skis per week.

Incentive Program Design

The Quality Skis Incentive Program is based on producing high quality skis that pass all safety and quality

tests on a weekly basis. The payments will vary per person based on the number of quality skis they can

produce each week $($Table $1).$

SAGE

$$ Matthew Charvat $2020$

SAGE Business Cases

Page $3$ of $5$ Calculating Incentive Payments at Alpine Valley Skis

Table $1.$ Incentive Program Payments Chart

Quality skis produced Weekly payout $($USD$)$

$0200$

$2130200$

$3140350$

$4150500$

$>50800$

In order for a weekly payment to occur, a minimum amount of $150$ quality skis must be achieved by the group

as a whole. If they do not produce at least $150$ quality skis in a week, then no one receives an incentive

payment that week, regardless of individual performance and productivity. Table $2$ shows the actual number

of quality skis produced by each employee over the last $5$ weeks.

Table $2.$ Quality Skis Produced by Each Employee

Week

No$.$ Quality Skis Produced

Dominick Johnson Patrick Boyd Vincent Pounds Megan Henry John Florence

$12739353235$

$21531382534$

$33017374224$

$42429424734$

$54232485148$

Discussion Questions

$1.$

What are the weekly incentive payments for each employee? What are the $5-$week total payments

for each employee? Use the charts and information contained in the case. Explain how you came to

these payments. Feel free to show your work.

$2.$

Based on the charts in this case $($Tables $1$ and $2)$ and the gross profit Alpine Valley Skis earns from

SAGE

$$ Matthew Charvat $2020$

SAGE Business Cases

Page $4$ of $5$ Calculating Incentive Payments at Alpine Valley Skis

each quality ski produced, what amount of profit can the company expect from the last $5$ weeks of

productivity?

$3.$

What are some benefits and disadvantages of a team$-$based incentive program? What are some

benefits and disadvantages of an individual$-$based incentive program?

$4.$

Do you think tying the weekly incentive payment trigger to a team$-$based goal is fair to all employees?

Support your answer with examples.

$5.$

Do you think productivity incentives are beneficial to companies? Do you think incentives drive the

desired type of employee performance?

$6.$

Do you think the Quality Ski Incentive Program is beneficial to the company? Explain your answer.