Puente Hills

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Puente Hill Toyota
Puente Hills Toyota (PHT) is a large Toyota dealership which is owned by the corporation Hitchcock Automotive Services. PHT is situated in city of industry, California, about 25 miles east of Los Angeles. PHT offers a wide variety of new and used cars (this is unique in the industry). Furthermore they offer Toyota incentives, service specials, and Toyota parts savings. The annual profits of PHT totaled about $1.8, with annual sales of $ 85 million. PHT had a total of 145 employees. The employees are very valuable to PHT due they are the ones who have to advise the customer, sell the vehicles and repair them. But it is hard to keep them al motivated. As said by Howard Hakes; "It's people who give us our biggest successes as well as our biggest challenges". The most important is to get all the employees in the same direction, to reach the companies goals. For PHT there are two important things, that both the manufacturers and the customers are happy. PHT is divided in five departments, who are reporting directly to the dealership manager, namely: a sales department, and service department, a body shop department, a parts department and a Finance and Insurance department. The departments are managed as profit centers. Within this profit centers there are different performance measurement and incentive systems. First the performance measures and incentive systems that apply to all the departments will be discussed. Than the Sales and Service department will be discussed separately. All the bonus plans within the sales department start from one. At PHT, most employees’ variable incentive pay increases linearly with performance, however performance is defined; that is, the higher the performance, the larger the bonuses that are paid. In most large companies, however, particularly at managerial levels, no bonuses are paid until a minimum level of performance, such as a budget goal, is exceeded. An advantage hereof is that managers will not so fast engage in earnings management; 'save sales' for a future period to reach their targets. Or 'take a bath', they make results (look worse) in bad times to get an advance on better results in the subsequent period (Merchant & Van de Stede, 2007 p.187). An disadvantage for PHT could be that an manager could be satisfied with an certain amount of bonus and will not work as hard as he did before anymore, due there isn't a real target. Goal-setting doesn't seem so important for PHT. But also goal setting can have negative impacts. An example is that the pressure for the managers and employees can be too high. p. 30 In short, we think it is a good way to motivate the employees, because the managers will not 'take a bath' or 'save sales'. At the other hand we think that employees always want to increase their bonus because they are self interested so they will be motivated.

The other performance measures are CSI and ESI, but it's vague how this performance measure are used. They could be used in a positive sense, to provide "discretionary" bonuses or in a negative sense to limit the amount of the bonus. We think this has to change because of two reasons, first of all it is not clear how it influences the bonus of the employees. Secondly, there isn't a group reward within PHT. By making the CSI an collective measure system a few things improve. The most important is the communication of expectations and mutual monitoring (social control). Evidence suggest that group rewards can have a positive effects on motivation and performance (Mercheant p.89). Thus they should adapt the survey that customers have to fill in that the final result is an mark. If the average of the marks given by the customers is 7 or higher, the bonus of all the employees who have contact with customers and the managers who are responsible for these employees will increase. If it is lower than 7 the bonus will decrease (see figure 1 for an example). In this manner group awards could be...
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