Fixed versus Base Wages Plus Commission Effects on Sales American Linen is a firm that has multiple

Fixed versus Base Wages Plus Commission Effects on Sales American Linen is a firm that has multiple salespersons In
2008, it changed the compensation method for its sales force, moving from a
system of fixed wages to one of base wage plus commission As a result,
American Linen’s total revenue from sales increased by almost 30%, and the
average compensation received by a salesperson also increased substantially
The firm is currently contemplating the introduction of comparative performance
evaluation in their compensation One alternative is to determine the variable
part of each salesperson’s compensation by comparing his or her performance to
the average performance of the firm’s sales force The second alternative is
similar, except that it uses the average performance of the sales force at
rival firms

A Explain why the change from a system of fixed wages to
one of base wage plus commission can lead to an increase in sales revenue

B Explain how the introduction of comparative evaluation
can reduce the firm’s cost of compensating its sales force Which alternative
would you favor? Why?

 

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