Problem 20-42 (Algo) Incentive Pay in the Hotel Industry [LO 20-2] [The following information applies to the questions displayed below.] Kristin Helmud is the general manager of Highland Inn, a local mid-priced hotel with 100 rooms. Her job objectives include providing resourceful and friendly service to the hotel's guests, maintaining an 80% occupancy rate, improving the average rate received per room to $108 from the current $105, achieving a savings of 5% on all hotel costs, and reducing energy use by 10% by carefully managing the use of heating and air conditioning in unused rooms and by carefully managing the onsite laundry facility, among other means. The hotel's owner, a partnership of seven people who own several hotels in the region, wants to structure Kristin's future compensation to objectively reward her for achieving these goals. In the past, she has been paid an annual salary of $92,000 with no incentive pay. The incentive plan the partners developed has each of the goals weighted as follows: Measure Occupancy rate (also reflects guest service quality) Operating within 95% of expense budget Average room rate Energy use Percent of Total Responsibility 15% 35 35 15 100% If Kristin achieves all of these goals, the partners determined that her performance should merit a bonus of $42,000. The partners also agree that her salary will need to be reduced to $80,000 because of the addition of the bonus. The goal measures used to compensate Kristin are as follows: Occupancy goal: Compensation: 29,200 room-nights = 80% occupancy rate x 100 rooms x 365 days 15% weight x $42,000 target bonus = $6,300 Expense goal: Compensation: Room rate goal: Compensation: Energy use goal: Compensation: $6,300/29,200 5% savings = $0.2158 per room-night 35% weight x $42,000 target bonus = $14,700 $14,700/5 = $2,940 for each percentage point saved $3 rate increase = $14,700 35% weight x $42,000 target bonus $14,700/300 = $49.00 for each cent increase 10% savings 15% weight x $42,000 target bonus = $6,300 $6,300/10 = $630 for each percentage point saved