Executive compensation, balanced scorecard. Acme Company recently introduced a new bonus plan for its corporate executives. The company believes that current protability and customer satisfaction levels are equally important to

Executive compensation, balanced scorecard. Acme Company recently introduced a new bonus plan for its corporate executives. The company believes that current protability and customer satisfaction levels are equally important to the company’s long-term success. As a result, the new plan awards a bonus equal to 0.5% of salary for each 1% increase in business unit net income or 1% increase in the business unit’s customer satisfaction index. For example, increasing net income from $1 million to $1.1 million (or 10% from its initial value) leads to a bonus of 5% of salary, while increasing the business unit’s customer satisfaction index from 50 to 60 (or 20% from its initial value) leads to a bonus of 10% of salary. There is no bonus penalty when net income or customer satisfaction declines. In 2016 and 2017, Acme’s three business units reported the following performance results: Transcribed Image Text: Online Sales
2017
S1,557,479
75
Wholesale Sales
2016
$1,062,540
Retail Sales
2016
2017
2017
2016
Net income
Customer satisfaction
$730,000
$811,900
93
$1,218,000
78.3
$1,108,123
72.9
87
65.7
1. Compute the bonus as a percent of salary earned by each business unit executive in 2017.
2. factors might explain the differences between improvement rates for net income and those for
customer satisfaction in the three units? Are increases in customer satisfaction likely to result in in-
creased net income right away?
3. Acme’s board of directors is concerned that the 2017 bonus awards may not accurately reflect the
executives’ overall performance. In particular, the board is concerned that executives can earn large
bonuses by doing well on one performance dimension but underperforming on the other. changes
can it make to the bonus plan to prevent this from happening in the future? Explain briefly.
Required

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