Dysfunctional behavior from performance evaluation

Employee bonuses at Happy Communication Corporation (HCC), a large communications firm, depend on meeting a number of targets including revenue target. Some bonus is awarded to the teams within the company if it meets or exceeds its target revenue for the year because the nature of the work is team-based. The bonus is also tied to meeting targets for earnings, employee satisfaction, hiring goals, and other specific objectives tailored to the teams or its manager.

HCC has several product developments teams within the firm. Each is assigned the task of developing new products or package for clients.

Product developers, primarily engineers and marketing people, are assigned to a new product development team to develop a specific new product.

Afterward, they are assigned to new development teams for a different division or are reassigned back to their former departments. Sometimes they become product managers for the new product.

Product development teams take roughly 18 months to develop and design the product.

For example, Prime Bundled Package is one of products HCC sells. The employees in the product development team for Prime Bundled Package receive part of their bonus based on whether Prime Bundled Package achieves its revenue target for that year.

It typically takes HCC three years from the time a product development team is formed until the product reaches the market. Once a new product idea is identified and researched, a prototype must be built and tested. Finally, it is introduced.

Another 18 months is required for approval, manufacturing design, further testing, and marketing. These functions are performed after the product development team has been reassigned.

Required:

Evaluate the incentives created by basing a portion of each current product developer's bonus on revenues for products now being sold.