1. At Puente Hills Toyota, most employees’ variable incentive pay increases linearly with performance, however performance is defined. This results in higher bonuses for higher performance regardless of the level of performance. Many incentive systems work on a budget basis so that bonuses are outachieved until a target is achieved. What are the advantagesand disadvantages of using a reward function that is linear as Puente Hill Toyota uses?
2. How can the opportunity to “game” the systems be reduced?