Question

Ben Johnson is the manager of the jewelry department of a large chain of department stores. The department store has succeeded on the basis of customer service and quality of merchandise. As a manager, Ben is compensated with a salary of $360,000 and a bonus based on his unit’s income. The bonus pool is 10% of companywide net income. When the unit’s return on invested assets exceeds the rate of return of the whole company, the unit manager is included in the bonus pool; the bonus pool is divided evenly among the managers that qualify for the bonus. Selected information about the department store and Ben’s performance is as follows. Customer service is measured on a 6-point scale, with 6 being the highest rating; quality of service is measured on a 10-point scale, with 10 being the highest rating. In the current period, 25 managers qualified for the bonus, including Ben.

	Jewelry Department			Whole Company
Stock price				$	40
Net income	$	2,058,000		$	18,100,000
Assets invested	$	24,100,000		$	289,100,000
Customer service		4			5
Quality of service		4			8
Total revenue	$	3,660,000		$	125,200,000

Required:

Based on the above information, what is the amount of total compensation for Ben?

Answer 1