Question

Jump has a network of sports clubs which is managed by local managers reporting to the main board. The local managers have a lot of autonomy and are able to vary employment contracts with staff and offer discounts for membership fees and personal training sessions. They also control their own maintenance budget but do not have control over large amounts of capital expenditure. A local manager's performance and bonus is assessed relative to three targets. For every one of these three targets that is reached in an individual quarter, TZS. 400 is added to the manager's bonus, which is paid at the end of the year. The maximum bonus per year is therefore based on 12 targets (three targets in each of the four quarters of the year). Accordingly the maximum bonus that could be earned is 12 x TZS. 400 = TZS. 4,800, which represents 40% of the basic salary of a local manager. Jump has a 31 March year end. The performance data for one of the sports clubs for the last four quarters is as follows.    Qtr to 30 June 20X1 Qtr to 30 September 20X1 Qtr to 31 December 20X1 Qtr to 31 March 20X2 Number of members 3,000 3,200 3,300 3,400 Member visits 20,000 24,000 26,000 24,000 Personal training sessions booked 310 325 310 339 Staff days 450 480 470 480 Staff lateness days 20 28 28 20 Days in quarter 90 90 90 90   Agreed targets are: (1) Staff must be on time over 95% of the time (no penalty is made when staff are absent from work). (2) On average 60% of members must use the clubs' facilities regularly by visiting at least 12 times per quarter. (3) On average 10% of members must book a personal training session each quarter. Required: (a) Calculate the amount of bonus that the manager should expect to be paid for the latest financial year. (b) Discuss to what extent the targets set are controllable by the local manager (you are required to make a case for both sides of the argument).   (c) Describe two methods as to how a manager with access to the accounting and other records could unethically manipulate the situation so as to gain a greater bonus

Answer 1

	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Number of Member	3,000.00	3,200.00	3,300.00	3,400.00
Member Visits	20,000.00	24,000.00	26,000.00	24,000.00
Personal Training Sessions Booked	310.00	325.00	310.00	339.00
Staff Days	450.00	480.00	470.00	480.00
Staff Lateness Days	20.00	28.00	28.00	20.00
Days in Quarter	90.00	90.00	90.00	90.00
Late Days/Total Staff Days %	4%	6%	6%	4%
On Time %	96%	94%	94%	96%
Target 1 met	TRUE	FALSE	FALSE	TRUE
12 visits for 60% members	21,600.00	23,040.00	23,760.00	24,480.00
Target 2 met	FALSE	TRUE	TRUE	FALSE
Personal Session for 10% members	300.00	320.00	330.00	340.00
Target 3 met	TRUE	TRUE	FALSE	FALSE
No. of Targets met	2.00	2.00	1.00	1.00
Bonus	800.00	800.00	400.00	400.00

Total Bonus = 800+800+400+400 = 2400

b. Extent to which targets are controllable by the manager

The targets assigned comprise of the punctuality of staff, the number of visits per member and the number of pernal sessions booked by members.

These targets depend upon the manager in the following ways:

• The manager is responsible for the team of staff working under him and inculcating the values of punctuality and importance of time among his subordinates.
• For the other 2 targets - these rely on manager's skill of persuasion and negotiation with the customer. That is, how effectively does the manager the market the services offered by the club. The club has linked their revenue (earned from visits/personal sessions) with the extra bonus earned by the manager.
• Secondly, these targets rely on manager's ability to impart necessary training to the staff so that even they can sell these services to the customers effectively.

Looking at the flip side all of these targets rely on behavior of individuals other than the manager. That is, these rely on staff behaviour and member's rsponses towards the club. So, even if the manager performs to the best of his ability, the staff could be late for more than 5% days owing to their personal reasons. There could be instances where members do not intend to personal seesions owing to their own financial constraints. Plus, if most of the members are seeing results theough normal visits they might not feel the need for booking personal sessions. Further, the drive for a customer to book a personal session highly depends on the personal trainer's skill set and the services offered by him/her.

c. Two methods for manipulation

• In case the attendance records are manually maintained and the time punching is not automated, the manager may manipulate the time of entry of staff to ensure that it is within the target limit.
• The manager may falsely increase no. of visits of members to meet the 2nd and 3rd targets in case there are no reconcilation between the visit records for members and the visits accounted for in the books.