Ramon Martinez is the general manager of Classic Inn, a locality-priced hotel with 100 rooms. His jobobjectives include providing resourceful and friendly service to the hotel s guests, maintaining an 80 percent occupancy rate, improving the average rate received per room to $88 from the current $85, and achieving a savings of 5 percent on all hotel costs. The hotel s owner, a partnership of seven people who own several hotels in the region, wanton structure Ramon s future compensation to objectively reward him for achieving these goals. In the past, he 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) 40%Operating within 95 percent of expense budget 25Average room rate 35100% If Ramon achieves all of these goals, the partners determined that his performance should merit a bonus of $23,000. The partners also agreed that his salary would be reduced to $60,000because of the addition of the bonus. The goal measures used to compensate Ramon are as follows: Occupancy goal: 29,200 room-nights 80 percent occupancy rate 100 rooms 365 days Compensation: 40 percent weight $23,000 target reward $9,200 $9,200/29,200 $0.315 per room-night Expense goal: 5 percent savings Compensation: 25 percent weight $23,000 target reward $5,750$5,750/5 $1,150 for each percentage point saved Room rate goal: $3 rate increase Compensation: 35 percent weight $23,000 target reward $8,050$8,050/300 $26.83 per each cent increase Ramon s new compensation plan will thus pay him a $60,000 salary plus 31.5 cents per room-night sold plus $1,150 for each percentage point saved in the expense budget plus $26.83 per each cent increase in average room rate

Required

1. Based on this plan, what will Ramon s total compensation is if his performance results are

a. 30,000 room-nights, 5 percent saved $3.00 rate increase.

b. 25,000 room-nights, 3 percent saved $1.15 rate increase.

c. 28,000 room-nights, zero saved $1.00 rate increase.

2. Comment on the expected effectiveness of this plan