Three weeks have passed since the television documentary was broadcast. During that period, Pizzatime closed all restaurants until they could be resupplied with freshly-made dough that had been made from flour that had been sourced from a new supplier.

You have received the following email:

From: Matt Spot, Finance Director

To: Financial Manager

Subject: FW: sales downturn

Hi,

I need your advice. Our restaurant managers are complaining that their bonuses are affected by the ongoing downturn in sales since the documentary. I have forwarded just one email to you, which is typical of the comments that I have been receiving. We need to decide on the following:

Should we relax the profit targets for restaurant managers' bonuses for this quarter on the grounds that costs and revenues are effectively beyond the restaurant managers' control?

Assuming that we decide to do so, how would be go about setting realistic targets?

Looking forward, beyond the present concerns about the documentary, should we consider linking the restaurant managers' bonuses to a balanced scorecard approach? What would the implications of that be?

Regards

Matt

From: Sally Collins, Jaytown Restaurant Manager

To: Matt Spot, Finance Director

Subject: sales downturn

Hello Matt

I have been manager of the Jaytown Restaurant for the past three years. During that time, I have regularly beaten sales targets and my restaurant has been highly placed in rankings based on customer feedback. I have enjoyed the challenge of working in this capacity for Pizzatime, but I am concerned that my reputation is going to be damaged by the current downturn ever since that terrible documentary was broadcast.

As a manager, I receive a salary and a quarterly bonus that is based on the profitability of my restaurant. I have always received the maximum bonus in the past, but I am unlikely to receive any bonus at all for this quarter. My restaurant was closed for four days while we were waiting for fresh dough. Our takings were down by over 40% in the first week after we reopened. Things have improved gradually since then, but only very slightly.

The quarterly bonus is a significant part of my income. I have to beat the targeted profit to earn any bonus at all. I only get the maximum bonus if I exceed the target by 20%. That is clearly not going to happen this quarter and it won't happen for the remainder of this year unless the targets are reduced in response to the crisis.

If you compare my position with that of a franchise owner then it is really unfair. The franchisees don't have a capped bonus, they get to keep as much profit as they can earn from their restaurants. They are also protected against downturns because their costs are smaller to match their reduced revenue. For example, Pizzatime does not permit me to lay off any of the staff in my restaurant, but I know that lots of the franchisees have done so since the documentary was broadcast.

I look forward to hearing from you.

Sally Collins

Jaytown Restaurant Manager

Pizzatime