The Bonus That Rewarded the Wrong Behavior
Your revenue manager's annual bonus is tied to RevPAR index versus a competitive set. Midway through the year, the index is strong, but you discover the RM has been closing out low-rate segments and steeply discounting a few high-demand dates to protect the index - which is calculated on rate and occupancy relative to competitors. The result: RevPAR index looks healthy, but total revenue and GOP are behind budget because the mix shifted to higher-cost, lower-margin business and some loyal accounts were turned away. The RM argues the index is the agreed metric and the tactics are legitimate. Your GM wants to know whether to intervene and how.
1. Is the RM's behavior a performance problem, a metric problem, or both? What do you do?
Read the worked answer
It is both, and the distinction matters for the response. The metric problem is real: RevPAR index measures rate and occupancy relative to a comp set, not profitability, mix, or total revenue. A rational manager optimizing a flawed metric will produce exactly this behavior - gaming the index by managing the denominator (comp-set positioning) rather than growing profitable demand. So the metric is partly to blame, and changing it is necessary.
But the behavior is also a judgement problem. Closing out low-rate segments and turning away loyal accounts to protect a ratio is a decision the RM should have flagged as conflicting with total-revenue and margin goals, and discounting high-demand dates to 'protect' an index is a misuse of pricing power. A professional raises the conflict; they do not quietly optimize the scoreboard.
The intervention: (1) acknowledge the metric's flaw openly rather than only blaming the RM - this preserves trust; (2) rebalance the scorecard to include total revenue, GOP/margin, and mix/segment contribution alongside index, so the incentive rewards the right outcome; (3) review the specific decisions (lost accounts, discounted dates) for remediation; (4) set a clear expectation that when a metric conflicts with the business, the manager escalates.
2. How do you have this conversation ethically and constructively?
Read the worked answer
Lead with the shared goal, not the accusation. Open by affirming the index result was strong and that the effort is recognized, then present the data: total revenue and GOP behind budget, mix shifted to lower-margin business, specific loyal accounts turned away. Let the numbers carry the message rather than a charge of misconduct.
Separate intent from impact. The RM may genuinely have believed the index was the target; say so, and own the organization's part in setting a metric that invited the behavior. Then be clear about the standard going forward: metrics are proxies, and when a proxy conflicts with the business, the expectation is to raise it, not exploit it.
Be transparent about consequences and support: no retroactive punishment for following a flawed incentive, but the specific decisions get reviewed and the scorecard changes. Document the conversation, agree on revised priorities and a check-in cadence. The ethical line is that you neither scapegoat the RM for a system you designed nor let the behavior continue unaddressed - you fix the system and reset the expectation, fairly and on the record.