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: Online Sales2017S1,557,47975Wholesale Sales2016$1,062,540Retail Sales2016201720172016Net incomeCustomer satisfaction$730,000$811,90093$1,218,00078.3$1,108,12372.98765.71. Compute the bonus as a percent of salary earned by each business unit executive in 2017.2. What factors might explain the differences between improvement rates for net income and those forcustomer 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 theexecutives' overall performance. In particular, the board is concerned that executives can earn largebonuses by doing well on one performance dimension but underperforming on the other. What changescan it make to the bonus plan to prevent this from happening in the future? Explain briefly.Required

Net Income: It refers to the remaining money with the company after all operating expenses,…

Answered: Online Sales 2017 S1,557,479 75…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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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:

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. What 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. What changes
can it make to the bonus plan to prevent this from happening in the future? Explain briefly.
Required

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