Question

Management Accounting Questions:

Grace Myer is the founder and CEO of Myer Sisters Apparel, a retailer of high?end women’s business apparel.  Earlier this year Grace opened her fourth retail store in Sydney’s Eastern Suburbs. While Grace has been pleased with the new store’s progress, she is concerned by the growing number of customer complaints and the low sales per square metre compared to some of her better?known competitors, such as Davie Laurie and HighChair Nine.  

When Grace had only one store that she individually owned and operated, she was able to control most of the details of the business. While she worked with a few employees, she always knew what they were doing. As the number of stores and the size of the stores increased, the number of employees also grew.  When Grace was running the one store, she rarely heard a customer complaint, and her sales per square metre were $500, compared to $400 today.  This concerned Grace greatly as her expansion plansfor Myer Sisters had to slow down because the stores were not producing the returns that she expected. T

he store managers were also complaining to Grace because of the high training costs of bringing on new employees. The turnover rate seemed to be very high and Grace could not understand why. She was paying one of the highest wages in the area to the sales clerks and store managers, yet they were leaving to work elsewhere. The customers were also complaining about the lack of helpfulness of the sales clerks. Even after extensive employee retraining, Grace was still hearing many complaints.  

Required:

1. Based on your understanding of the differences between intrinsic motivation and extrinsic motivation, discuss why paying good wages is not enough to elicit high performance in Myer Sisters.

2. Grace is considering implementing an alternative reward system for her staff: A “gain? sharing” plan, with a focus on generating sales revenue.  Specifically, 15% of any revenue in excess of the target sales level of $4 million per year will be placed in a “bonus pool” for distribution to allstores(last year’ssales were $3 million).  For example, if Myer Sisters as a group achieves total sales revenue of $4.5 million ($0.5 million more than the target level), then 15% of the additional $0.5 million in sales revenue will be distributed to employees.  All sales staff will receive a portion of the bonus pool, with store managers receiving a greater percentage compared to sales clerks.   Do you think this gain sharing plan is a good idea? Support your answer using

(a) Goal Setting Theory;

(b) Expectancy Theory and

(c) Agency Theory as appropriate (i.e., you do not need to refer to every part of every theory).

3. Based on your understanding of the various principles of incentive system/performance evaluation system design, make three suggestions as to how Myer Sisters’ performance measurement/incentive system could be improved.

Answer 1