Chapter 16: Individual Performance Evaluation
SEMCO S.A.
Discussion Question Answer:
One problem is the risk this system imposes on employees. They can be fired because ex post
random events prevented them from generating their full worth to the company. Also, errors in
managers judging their worth further increases the risk employees bear. Another problem is the
WHY TEAMS FAIL
Discussion Question Answer:
Teams fail for several reasons including:
The mental opt-out. Busy managers feel compelled to sit through endless team meetings and
Dueling advice. “Teams start out with everyone very polite. Then they start to storm.” Several
months can pass before things settle down.
STRUCTURING SALESFORCE COMPENSATION
Discussion Question Answers:
2. $21,000 + .2(own sales–average sales)
Note: We adjust the intercept of the pay plan by $6,000 to reflect Ed’s average loss imposed on
A = $21,030; S = $684.84
3. No — in choosing how hard to work, Ed goes to the point where the marginal cost of effort
equals the marginal benefit of effort. Adding the relative-performance term does not affect Ed’s
5. C = a + .2(own sales – λaverage sales)
Note 1: .832 is the coefficient from the regression of own sales on average sales. Students often
get a slightly different answer if they calculate the covariance and variance using a standard
rather than the expected value of $30,000. This is OK.
6. A = $21,012; S = $671.33
Note: In this example, the benefits of the improved plan over the simple adjustment are not