One City Cat Care (CCC) is an Australian pet insurance company.It has 50 claims examiners in the Sydney division, who are paid a fixed salary to process claims. Currently 10% of the claims are processed with errors. Claims with errors have to be reprocessed by the claims examiners, which is costly and time consuming. Mandy, the state manager, is not satisfied with the current volume of claims processed on a daily basis. She has instructed Linda, the Sydney division manager, to devise a compensation scheme to motivate the claims examiners to work faster. However Linda is concerned that the examiners would make more errors by working faster her own compensation is currently partly based on keeping divisional costs down! Required: A. Suggest an incentive scheme for the claims examiners that will address both Mandy amd Lindas concerns.Where possible, use principles of expectancy, agency, and goal setting theories to inform your answer. B. Provide one (1) efficiency and one (1) effectiveness measure that would help you assess how well the plan you suggested in (A) is working, and explain why you have chosen them. Question Two Sithland Ltd manufactures action hero figurines. Recently, the company introduced the Srider , a halfman, halfspider hero riding on a unicorn.Among other components, each unit of Srider requires a pair of Beastly Blue nonreflective glass eyes, which can be purchased from the Glass Eyes department, or from external suppliers.Contrary to popular belief, the market for glass eyes is actually highly competitive and is a growth industry.It is, however, the unwritten law in Sithland Ltd that glass eyes of all action hero figurines are purchased from the Glass Eyes department if excess capacity exists. Both the Glass Eyes and Assembly departments are decentralised profit centres, and all managers receive bonuses based on the performance of their divisions. The following exchange was overheard by you in Sithlands latest transfer pricing meeting, between Maria, manager of the Glass Eyes department, and John, the manager of the Assembly department. John: Come on, Maria, I know youre running below capacity in your division. I want to purchase 20,000 units of Beastly Blue at $4 a pair. That will enable you to keep your production lines busy. Maria: No way! I know it would cost you a lot more if you buy the Beastly Blues from outside suppliers I think the market price is $7.50 a pair. I am not going to accept any offer less than that, which gives us the usual markup over all our costs. John: But, but, but I know for a fact that your unit variable cost is only $3.All other costs are committed. Even $4 a pair will give you a decent profit. Its not like you have other customers queuing outside your door offering $7.50 a pair anyway! Maria: Not decent enough Im afraid! I stand by $7.50, take it or leave it! As a result of this exchange, John eventually purchased the required glass eyes from outside suppliers at $7.50 a pair; while Marias department continues to operate below capacity. Required: (a) Based on the general rule for transfer pricing, what should the transfer price be for one pair of Beastly Blue glass eyes? (b) State TWO(2) likely reasons why Maria refused to sell the Beastly Blue glass eyes to John at the price he is asking. (c) To prevent situations like this occurring again in the furture, Sithland Ltd is considering changing the companys compensation scheme to reward managers based on the overall performance of Sithland Ltd rather than divisional performance.Do you agree with this approach? Explain your answer in light of Agency Theory AND Expectancy Theory. Question Three Grace Myer is the founder and CEO of the Myer Sisters Apparel, a retailer of highend womens business apparel.Earlier this year Grace opened her fourth retail store in Sydneys Eastern Suburbs. While Grace has been pleased with the new stores progress, she is concerned by the growing number of customer complaints and the low sales per square metre compared to some of her betterknown competitors, such as Davie Laurie and HighChair Nine. When Grace had only one store that she individually owned and operated, she was able to control most of the details of the business. While she worked with a few employees, she always knew what they were doing. As the number of stores and the size of the stores increased, the number of employees also grew.When Grace was running the one store, she rarely heard a customer complaint, and her sales per square metre were $500, compared to $400 today.This concerned Grace greatly as her expansion plans for Myer Sisters had to slow down because the stores were not producing the returns that she expected. The store managers were also complaining to Grace because of the high training costs of bringing on new employees. The turnover rate seemed to be very high and Grace could not understand why. She was paying one of the highest wages in the area to the sales clerks and store managers, yet they were leaving to work elsewhere. The customers were also complaining about the lack of helpfulness of the sales clerks. Even after extensive employee retraining, Grace was still hearing many complaints. Required: 1. Based on your understanding of the differences between intrinsic motivation and extrinsic motivation, discuss why paying good wages is not enough to elicit high performance in Myer Sisters. 2. Grace is considering implementing an alternative reward system for her staff: A gain sharing plan, with a focus on generating sales revenue. Specifically, 15% of any revenue in excess of the target sales level of $4 million per year will be placed in a bonus pool for distribution to all stores (last years sales were $3 million).That is, if Myer Sisters as a group achieves total sales revenue of $4.5 million ($0.5 million more than the target level), then 15% of the additional $0.5 million in sales revenue will be distributed to employees.All sales staff will receive a portion of the bonus pool, with store managers receiving a greater percentage compared to sales clerks. Do you think this gain sharing plan is a good idea? Support your answer using (a) Goal Setting Theory; (b) Expectancy Theory and (c) Agency Theory as appropriate (i.e., you do not need to refer to every part of every theory). 3. Based on your understanding of the various principles of incentive system/performance evaluation system design, make three suggestions as to how Myer Sisters performance measurement/incentive system could be improved