Name- Nilesh Sohanlal

Student ID-T00542767
From: Nilesh Sohanlal
To: Board of Directors of Puente hills and kooistra Autogroep
Date: January 25th 2016
Subject: comparing performance measurement and incentive systems of two different companies in the same
industry

Puente Hills Toyota

Its a Hitchcock largest dealership and it is located in southern California. Its main aim was to keep
manufacturers and customer happy. Annual sales were about $85 million including 10 million dollars from
body shop and this dealership has won many awards over a period of year.
The main department which generate highest profit (15-20%) was service department. They allocated
expense into proportion 70:30 with former going to new vehicle and later going to used vehicles. Transfers
to other departments are done at market price. Pay rate was good in this company the incentive and
bonuses were performance driven.
The dealership was operating on combination of new and used vehicles department working together.
There were still some management issues that the dealership was facing. The sale personnel were not
effective in following up with customer. I think the reason behind that was there were no incentives to
encourage follow up and referral behaviors. Still this dealership was doing great despite of these problems
that they were facing.

Kooistra Autogroep
Its a family business which was passed onto Tom kooistra by his father. Tom Kooistra is a CEO of this
business and with his arrival he makes a significant change by decentralizing the working structure and

introducing of pay for performance system for the companys dealership and department managers. He
introduced the new management control system in which he focused on three vital aspects

Performance reporting
Budgeting
Pay for performance

He figured that employees in his company want appraisal in salary rather that making commission on sales
because the sales people were not making high sales as it was anticipated. But the performance incentive
system did motivate the employee but not to the extent Tom thought it to.

Ques 1 Compare and contrast the performance measurement and incentive system used at
Puente hills Toyota and kooistra autogroep?
Comparison of performance measurement and incentive system at both organization

Employees at PHT are making more commission in comparison to people working at kooistra
autogroep because the sales in former organization are higher.
Employees working in PHT are least concerned about base salary and more about commissions
whereas its reverse in case of kooistra autogroep
Employees at PHT were achieving their defined targets and were actually doing more than that
whereas the employees at kooistra were struggling with their defined objectives.
If the measures and rewards are not sensitive to the effort the employees put in to achieve the
targets, the employees will not believe in the system and incentive pay will lose its ability to
motivate employees. Last but not least, incentives must be set at a level which employees find
attractive enough. For instance, Kooistra Autogroep implemented the pay for performance system
and one reason it did not work optimally was because some employees found the bonus level too
low to motivate even in good years.
The organization must administer the performance measurements precisely (i.e. equally good
performance should be rated equally), objectively (i.e. measurements should be unbiased), timely
(i.e. measures and any rewards should not lag employees performance too much) and

understandably (i.e. there should be clear communication to employees of the performance targets
and even training where necessary).
Ques 2 When comparing the use of incentives in the two companies, do you believe that
incentive pay is truly effort-inducing; that is does it drive employees to perform at their best?
If you believe incentive pay is not, in whole or in part, effective in making employees work
harder, then what other potentially useful purposes does variable incentive pay provide for
organizations relying on it, if any?
In case of Toyota dealership it induced the employees effort because sales at Toyota were very high
in comparison to kooistra autogroep. In Toyota dealership the sales employee were making $6000 $7000 dollars per month and they were in their early 20s where as in kooistra the employees wanted a
raise in salary instead of commission because the sales were not great because of unrealistic targets were
given to achieve, which was really demotivating for the employees.
I think if incentive is not that great then work environment should be improved so they feel happy and
their loyalties stay with business. Job security is a great factor.
Variable incentive pay brings the best out of employees performance and organization comes to know
about their performances and their efficient workers.

Ques 3 What advice would you provide to managers of these companies?

Advice to managers of PHT

They should focus on the follow ups with consumers because it is very necessary to retain a consumer
for future sales.
The expense ratio can be fairly adjusted to departments.
They should make sure that technicians diagnose the problem properly and do the proper procedure
as required.
Advice to managers of kooistra autogroep

It should not be fully performance based because the sales were not that high.
Managers should set realistic targets which can be achieved or achievable.
Appraisal in salary should be performance based not just sales.

Ques 4 As a first approximation, which of the following statements do you believe is most
correct, and why:
. People are people. They respond approximately equally to many things, including incentive
systems.
. To work well, a companys incentive systems must be tailored in many ways to fit the specific
desires of various employee groups.
I believe the second one is most correct because every organization work differently and follow
different structures. So incentive system should always be tailor-made to satisfy and motivate employees
so they give their best to achieve targets and goals of the organization. It can be performance driven or
increase in fixed salary if the targets are achieved.

References
Kenneth, A., & Wim A., V. (2012). Management and control. In Management and control systems (3rd ed., pp. 293-294). England: Pearson
Education Limited.

http://en.wikipedia.org/wiki/Management_control_system