Managerial Economics & Organizational Architecture 6th Edition by James Brickley , Clifford Smith ,Jerold Zimmerman

Exercise 23

Bob's Manufacturing Company has altered the determinants of pay raises for U.S. employees. Whereas in the past pay increases for managers, professionals, and hourly workers had been automatic, starting last year the company began determining the size of an annual bonus pool and then allocated lump-sum bonuses to employees on the basis of performance. Hourly workers were to be evaluated within their annual performance appraisals; professional-level employees would work with their supervisors to establish personal goals against which they would be measured.
a. What problems do you foresee with the implementation of this arrangement Be specific about who will be affected by the problems you've identified.
b. What recommendations would you offer to top management at Bob's Manufacturing Company to preempt or minimize problems with the new reward system