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.