Performance Evaluation and Risk Aversion Jill Lewis is the office manager of PureBreds Inc.Her office has 30 employees whose collective job is to process applications by dog owners whowant to register their pets with the firm. There is never a shortage of applications waiting to be processed, but random events beyond Lewis’s control (e.g., employees out sick) cause fluctuations inthe number of applications that her office can process. Jill is aware that it is important that the applications be processed quickly and accurately. Alex Zale, the district manager to whom Jill reports,bases his evaluation of Jill on the number of applications that are processed.Required1. If Jill is risk averse, how should Alex compensate her? Why?a. Flat salary.b. Straight commission based on the number of applications processed.c. Flat salary with a bonus based on the number of applications processed.d. Flat salary with a bonus based on the firm’s earnings.2. What is a disadvantage of an evaluation method that is based only on the number of processed applications?3. List at least two ways that Alex could measure how accurately Jill’s office is processing the applications.
Performance Evaluation and Risk Aversion Jill Lewis is the office manager of PureBreds Inc.
Her office has 30 employees whose collective job is to process applications by dog owners who
want to register their pets with the firm. There is never a shortage of applications waiting to be processed, but random events beyond Lewis’s control (e.g., employees out sick) cause fluctuations in
the number of applications that her office can process. Jill is aware that it is important that the applications be processed quickly and accurately. Alex Zale, the district manager to whom Jill reports,
bases his evaluation of Jill on the number of applications that are processed.
Required
1. If Jill is risk averse, how should Alex compensate her? Why?
a. Flat salary.
b. Straight commission based on the number of applications processed.
c. Flat salary with a bonus based on the number of applications processed.
d. Flat salary with a bonus based on the firm’s earnings.
2. What is a disadvantage of an evaluation method that is based only on the number of processed applications?
3. List at least two ways that Alex could measure how accurately Jill’s office is processing the applications.
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