Case Study : Wayside Inns, Inc.

Chapter 12 : Management Compensation

Arranged by:
Eigha Aprilia S (16312086)

International Program
Universitas Islam Indonesia
2018
 Table of Contents

Tittle Page ................................................................................................................

Table of Contents ...........................................................................….............…......…1

Chapter 1 : Introduction..............................................................................….…..……2

1.1 Study Background............................................................…..…..….…...…2

1.2 Problem Formulation………………………………………………………3

Chapter 2 : Discussion….............................................................................….…..……3

Chapter 3 : Conclusion and Recommendation……....................................….…..……6

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 Chapter 1
Introduction
1.1 Study Background

Wayside Inn, Inc. is located in Kansas City, Missouri, formed in 1960 as

successor to motel companies in America, this company has several franchises The
motel is under a cooperation license from two national Motel networks. Due to
restrictions on contract agreements, America cannot expand coverage their operations
based on geographical area. The successor company was formed to obtain, operate
and obtain a Motel network license under the name of Wayside Inn to continue the
operation of the existing franchise owned by America. Management feels that the
strategy of developing networks their own motel will buy more flexibility and will
allow them to more easily reach the term growth strategy long. The other main reason
is that the new company's strategy will enable management to pursue the
implementation of a comprehensive marketing plan which has been developing
continuously in the past seven years.
Wayside Inn is a listed company listed on the American stock exchange. Shares
that are about 1,542,850 shares, with an average float of 400,000 shares. The common
stock price is appreciated very well, and analysts believe if Investor interest is skewed
due to a number of factors mainly due to marketing strategies they are innovative. The
Wayside Inn occupancy rate, in the range of an average of 10 to 20 percent higher
competitor Motel. Their Market Segments are specifically targeted for a business
traveler, where this segment is not affected by seasonal factors or the environment.
The company plans to expand 40 rooms at the Motel Memphis Airport Wayside
Inns which previously had 116 room. The location of the Motel is located at the
intersection of Brooks road and airport road. In 1991, the accommodation operated
with almost full capacity for 5 days in 1 week, except Saturday and Sunday. With an
average turn away of 31.7 percent from Monday to Friday, where on Saturday and
Sunday the average turn away only 9.05. In the radius 2 miles from the inn, there are
around 10 inns competitors who are all members of national franchise inns and a
number of non-franchise inns too. Based on the latest Memphis survey Chamber of
Commerce, average occupancy rate ranges from 72% and expansion plans what will
be done by the majority of the lodging network is expected to be there were an
additional 800 rooms in the city within 18 months.

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 Inn manager Layne Rembert also expressed concern about proposed expansion,
in particular, the expansion of 80 rooms at other lodgings at the center of Toledo, will
reduce the value of returns on these investments. Case this was formed from the
conversation when Wayside Inns Regional GM Kevin Gray visit Memphis Airport
Wayside Inn for inspection and Layne Rambert's Lodging manager. Rembert was
skeptical of the new investment, remembering Income compensation is associated
with lodging ROI, as is the case seen in Toledo, where the ROI on new investments
dropped which eventually affect compensation. On the other hand, Gray hopes to
continue to grow.

1.2 Problem formulations

In this case, several points will be discussed, namely about:
1. Is the proposed investment likely to be a good one for Wayside Inns, Inc?
2. Is Lyne Rembert’s concern justified?
3. Is the current compensation package for inn manager an appropriate one? If not,
what would be?
4. Should the performance measurement system a regional general manager be
focused upon the same factors that are used by Kevin Gray and Wayside Inns to
evaluate and compensate an inn manager?

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 Chapter 2
Discussion
2.1 Is the proposed investment likely to be a good one for Wayside Inns, Inc?
Pro side: The proposed expansion appears to meet the firm’s stated expansion
criteria; The existing inn is clearly operating at or near its practical capacity; The
analysis is based on one year only, and it ignores the fact that the management and
reservation fees stay within the overall firm.
Con side: The ROI is projected to decrease with the investment; The turnover
count might be grossly overstated. This depends on how these data are collected. The
same person could show up on the turnaway count of several reservation services;
There is a risk of being hurt by either a downturn in the economy or overbuilding in the
local market.
Drawing conclusions whether the proposed investment is likely to be a good one is
not easy in this case. However, the pro case would appear to be more convincing over
the long run.

2.2 Is Lyne Rembert’s concern justified?

Layne Rembert's concern can be justified because it is judged from the proposed
expansion, but it is certain that it will succeed or not. Seeing the expansion of 80
additional rooms at the central property of Toledo has reduced the rate of return on
investment and perhaps the expansion of 40 additional rooms of this property also gives
the same effect. Then with a decrease in investment, the impact on the land is obtained
by companies that will have an impact on the incentives of company managers

2.3 Is the current compensation package for inn manager an appropriate one? If
not, what would be?
The management couples are directly responsible for such factors as the internal
and external appearance of the motel, the cleanliness of the rooms and the attitude of
the front desk personnel. They also have some influence over direct costs,
administrative and financial costs, and over the volume of business. Therefore the
Performance Evaluation Report could be argued to be included as one of the
determinants of compensation.
The regional general manager has a key role and this might raise the anxiety level
of the management couples. To ensure some uniformity of evaluation techniques across

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the various inns, a travelling inspector could for example be employed to periodically
check such things as room cleanliness etc.
A naturally-based ROI system is unfair because it is tied to a historical cost
measurement system. Older property has a higher ROI because the investment base is
somewhat smaller. This will make almost all proposed extensions look less profitable

2.4 Should the performance measurement system a regional general manager be

focused upon the same factors that are used by Kevin Gray and Wayside Inns to
evaluate and compensate an inn manager?
Yes, because measurement of manager's performance is not only based on
financial statements (company profits) but also emphasized on the designation of
several other factors that influence the company's progress in the long term by
implementing a 20-number performance report developed by Kevin Gray.

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 Chapter 3
Conclusion and Recommendation
3.1 Conclusion
Wayside Inns was formed in 1980 as the successor to United Motels Enterprises,
a company that operated several franchised motels under licensing agreements from
two national chains. Wayside has been experiencing brisk business and is currently
operating at near full capacity. To capture more business Wayside is considering a
40-room expansion for the motel. Inn manager Layne Rembert also expressed concern
about proposed expansion, in particular, the expansion of 80 rooms at other lodgings
at the center of Toledo, will reduce the value of returns on these investments.
However, the current compensation plan is actually incongruent with the
company’s 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 turn-aways
(since the motel is near its full capacity), the unit manager is not motivated to pursue the
said investment as it will decrease the outlet’s 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 head5uarters.
3.2 Recommendation
Wayside Inns Inc. is a strong company, but a number of changes will need to be
implemented to do even better. These are:
•Fairer rewards systems that take into account factors out of manager’s reasonable
control
•Lower/ditch the fringe benefits as a form of compensation as it is not tied to a
performance measure
The current compensation system of Wayside Inns is appropriate and congruent
with corporate ob1ectives, except for the return on Investment bonus. Thus, ROI
should not be included in a unit manager’s performance indicator since investment
decisions are not within a unit manager’s control. Instead, the company should
replace the ROI bonus with "customer satisfaction.7 8nder 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 manager’s
performance and it is a factor that is well within the unit manager’s control.