Question
Yinarr Health Inc (Yinarr) provides health services to rural communities in Australia. Yinarr operates 30 clinics that range in size from very remote clinics that
Yinarr Health Inc (Yinarr) provides health services to rural communities in Australia. Yinarr operates 30 clinics that range in size from very remote clinics that treat a few patients per day to clinics in large regional towns that treat hundreds of patients per day. The manager of each clinic enjoys a high degree of autonomy and is accountable for the financial performance of their clinic. Yinarr operates an incentive scheme where clinic staff share a bonus equal to 5% of the residual income (RI) of their clinic, with a required annual rate of return of 12%.
Kirra is Yinarr's newly appointed CFO. She is concerned that the bonus received by a manager is affected more by external factors such as government health programs, outbreaks of disease, and macroeconomic conditions, rather than the manager's efforts and achievements. The effect of these external factors seems to be uniform across all Yinarr's clinics.
Kirra wants to adjust the existing performance metric to make the incentive scheme less sensitive to external factors. Based on the information provided, which of the following metrics is Kirra's best option?
Group of answer choices
A. Residual income (RI) of the clinic divided by the average RI across all Yinarr's clinics.
B. Return on investment (ROI) of the clinic multiplied by the operating profit of the clinic.
C. The growth in revenue of the clinic as a percentage of Yinarr's consolidated revenue.
D. The residual income (RI) of the clinic, where the required rate of return is the return on investment (ROI) for all Yinarr's clinics.
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