After the facts are clarified, the evaluation discussion can begin. The following set of questions can be used to guide the evaluation, although some of these answers might already have come out while the facts were being clarified.
1. What was the goal in establishing this new incentive program?
There were two goals. One was to influence the behavior of the FSEs in desirable ways. Thus, this program was serving a control system role. The other goal was to provide fair compensation, which is necessary for attracting and retaining good FSEs. In particular, the comp units had to be replaced.
2. What are the desired behaviors? What makes a good FSE? Good FSEs:
Keep their customers satisfied, as much as is possible. But the goal is not 100% satisfaction, as things that the FSE cannot control can and will happen.
Control service costs.
Fill out the needed paperwork and input the data to DPC’s information system. 3. Does the program include the right measures, and are they weighted properly?
This is a critical question. It seems clear that keeping customers satisfied is the FSEs’ primary goal. Most of the measures included in the Performance Bonus Program are intended to be among the most important drivers of customer satisfaction. Controlling service costs is an important secondary concern. And feeding the company’s information system is also deemed important. An FSE cannot be rated excellent without superior performance in all three of these areas.
It is useful to raise and discuss a number of measurement issues:
Why include the teamwork factor, which is not highly controllable by individual FSEs? Is there too much emphasis on performing quantities of preventative maintenance (PM) and not enough on non-PM activities?
Do FSEs have enough incentive to control the costs of their activities? Is this performance dimension weighted high enough in importance?
Are differences in customer mix and the effects of uncontrollable factors worrisome? Can the measures be “gamed?” Most measures can be gamed. For example, one of DPC’s competitors rewards FSEs based on a quick response time. But in some cases after FSEs got a dispatch, they called the customer to say that the problem was fixed. Then they went out the next day and fixed the problem.
Merchant & Van der Stede, Management Control Systems, 3rd edition, Instructor’s Manual
In DPC’s case, there are possible end-of-quarter games, games that focus excessive attention on the IMMULITE instrument rather than on the more complex IMMULITE 2000; games that involve direct calls from customers to FSEs to avoid the dreaded “call-backs;” games to avoid certain types of calls from the dispatchers; and games that lead to inventory build-ups to ensure complete first visits. Can DPC managers detect and control these games?
Can the evaluations in the administrative area be made less subjective, or is subjectivity not a problem? The answer to this question depends on whether the evaluators are informed and unbiased. Or should some of the administrative areas be removed from the bonus program entirely, based on the belief that these are just routine tasks the FSEs must perform?
Are the problems with the direct measurement of customer satisfaction significant? The 25% response rate seems low. How can this be improved?
What are the drivers of customer satisfaction? DPC has impounded their assumptions about these drivers in this system. Do any look suspect? Can these be tested empirically? If so, how?
The best FSEs are qualified on the 2500 and SMS, but they are not rewarded for this work. Is this a flaw in the system?
One useful way to evaluate each of the measures included in the system is in terms of the set of measurement evaluation criteria (i.e., congruent, controllable, timely, precise, etc.) described in several chapters in the book (e.g., Chapters 2, 10).
4. Is the reward portion of the program well designed? In particular,
Are the rewards large enough to attract attention? The rewards are not large here, but students should recognize that the total reward is not limited to the monetary reward, which is just a small percentage of salary, plus the allocation of points, which have unknown value at the time of the case. This system is designed to form the basis for an FSE’s entire performance evaluation, which can affect the assignment of other rewards, such as salary increases and promotions.
Are the payments made on a timely enough basis to ensure that the FSEs’ attention will not wander?
5. Do the benefits of this program exceed its costs?
6. Was the deliberate, gradual implementation approach wise? Because they were not experienced in the design of incentive compensation systems and because many issues had to be worked out, perhaps the DPC managers should not be faulted for their phased-in implementation strategy. But some students will be critical of this approach particularly because the case is written at an intermediate stage of development.
7. This is a system designed for US-based FSEs. Would this same system work for non US- based FSEs?
After the evaluation is complete, students can be asked for their suggestions for improvements. There are lots of possibilities relating to any or all of the areas identified above. For example, some students will suggest just holding FSEs accountable for direct measures of customer satisfaction, not some combination of satisfaction plus satisfaction drivers. Some students will suggest holding the FSEs accountable for the average percent of time the instruments in their
territory were operational. And some students will raise points related to the values that should be attached to the points earned, the high point weighting assigned to the administrative function ratings, the exclusion of the newer instruments (e.g., 2500), and ways of getting better direct measures of customer satisfaction. But not all suggestions are good. Instructors should invite critiques of suggestions as the ideas are raised.