Problem $20-42($Static$)$ Incentive Pay in the Hotel Industry $[$LO $20-2]$

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Kristin Helmud is the general manager of Highland Inn, a local mid$-$priced hotel with $100$ rooms. Her job objectives include providing resourceful and friendly service to the hotel$$s guests, maintaining an $80\%$ occupancy rate, improving the average rate received per room to $$88$ from the current $$85,$ achieving a savings of $5\%$ on all hotel costs, and reducing energy use by $10\%$ by carefully managing the use of heating and air conditioning in unused rooms and by carefully managing the onsite laundry facility, among other means. The hotel$$s owner, a partnership of seven people who own several hotels in the region, wants to structure Kristin$$s future compensation to objectively reward her for achieving these goals. In the past, she has been paid an annual salary of $$72,000$ with no incentive pay. The incentive plan the partners developed has each of the goals weighted as follows:

Measure Percent of Total Responsibility

Occupancy rate $($also reflects guest service quality$)20\%$

Operating within $95\%$ of expense budget $30$

Average room rate $30$

Energy use $20$

$100\%$

If Kristin achieves all of these goals, the partners determined that her performance should merit a bonus of $$30,000.$ The partners also agree that her salary will need to be reduced to $$60,000$ because of the addition of the bonus.

The goal measures used to compensate Kristin are as follows:

Occupancy goal: $29,200$ room$-$nights $=80\%$ occupancy rate $\backslash$times $100$ rooms $\backslash$times $365$ days

Compensation: $20\%$ weight $\backslash$times $$30,000$ target bonus $=$ $$6,000$

$$6,000/29,200=$ $$0\mathrm{.}2055$ per room$-$night

Expense goal: $5\%$ savings

Compensation: $30\%$ weight $\backslash$times $$30,000$ target bonus $=$ $$9,000$

$$9,000/5=$ $$1,800$ for each percentage point saved

Room rate goal: $$3$ rate increase

Compensation: $30\%$ weight $\backslash$times $$30,000$ target bonus $=$ $$9,000$

$$9,000/300=$ $$30\mathrm{.}00$ for each cent increase

Energy use goal: $10\%$ savings

Compensation: $20\%$ weight $\backslash$times $$30,000$ target bonus $=$ $$6,000$

$$6,000/10=$ $$600$ for each percentage point saved

Kristin$$s new compensation plan will thus pay her a $$60,000$ salary plus $20\mathrm{.}55$ cents per room$-$night sold plus $$1,800$ for each percentage point saved in the expense budget plus $$30$ for each cent increase in the average room rate plus $$600$ for each percentage point saved in energy use. The minimum potential compensation would be $$60,000$ and the maximum potential compensation for Kristin would be $$60,000+$ $$30,000=$ $$90,000.$

Part $1($Static$)$

Required:

$1.$ Based on this plan, compute Kristin$$s total compensation if her performance results are: $($Round your answers to the nearest whole dollar amount.$)$

a$.30,000$ room$-$nights, $5\%$ saved, $$3\mathrm{.}00$ rate increase, and $8\%$ reduction in energy use.

b$.25,000$ room$-$nights, $3\%$ saved, $$1\mathrm{.}15$ rate increase, and $5\%$ reduction in energy use.

c$.28,000$ room$-$nights, $0\%$ saved, $$1\mathrm{.}00$ rate increase, and $2\%$ reduction in energy use.