3.

ANALYSIS:
Wayside Inns strategy emphasized on accommodating business travellers
who were generally indifferent to elaborate settings. As such, their motels
did not have common areas like lobbies, convention rooms or bars. Instead,
they focused on clean rooms and dependable service, with rates that are
approximately fifteen to twenty percent lower than other motels. Moreover,
Wayside Inns situated their motels in different locations within the city, near
interstate highways convenient to commercial districts. The strategy was to
have accommodations in various sites rather than one large hotel.
In order to encourage unit managers to adhere to the Wayside Inns corporate
strategy, a compensation plan tied to the companys profitability was
established. The compensation plan included: (1) Base Salary: calculated on
the basis of years of service and sales volume, (2) Sales Volume Incentive:
based on sales volume increases, (3) Return on Investment Bonus, and (4)
Fringe Benefits: apartment, company car, laundry service, local phone
service.
However, the current compensation plan is actually incongruent with the
companys corporate objectives, as demonstrated by the circumstances
involved in the proposed investment (of a 40 room expansion) at the
Memphis Airport Wayside Inns. While the proposed expansion will reduce the
opportunity cost of present turnaways (since the motel is near its full
capacity), the unit manager is not motivated to pursue the said investment

as it will decrease the outlets ROI, accordingly reducing his Return on

Investment bonus.
Furthermore, performance measures should have factors that a unit manager
has control over; however, investments and expansions are under the
discretion of corporate headquarters.
4. RECOMMENDATION:
The current compensation system of Wayside Inns is appropriate and
congruent with corporate objectives, except for the Return on Investment
bonus. Thus, ROI should not be included in a unit managers performance
indicator, since investment decisions are not within a unit managers control.
Instead, the company should replace the ROI bonus with customer
satisfaction. Under the circumstance that the business is in the hospitality
industry and mainly provides service as its main commodity, customer
satisfaction is a more suitable index to measure the managers performance
and it is a factor that is well within the unit managers control.
Along with the 4-point total compensation plan. The 20-point performance
evaluation report used by regional general manager, Kevin Gray,

is an

effective measure of a unit managers performance and should be

institutionalized; though, it needs to incorporate more indices that pertain to
customer satisfaction.