¶ … managerial decisions: Structuring compensation plans Economics / Chapter 14

Firms attempt to create attractive compensation plans in order to retain as well as motivate qualified employees. These compensation plans will vary among firms due to factors such as the nature of the product, competition, and location. In this particular case, Kaufmann's is a large chain department store which carries a broad range of products with a target of middle income consumers. With the knowledge that middle income consumers tend to spend more of their money on goods and services, this would tend to mean that there is the possibility for them to sell more goods than Parkleigh Pharmacy, as Parkleigh Pharmacy sells very expensive products. Taking this into consideration, Kauffmann's offering a five percent commission on sales will motivate the sales person...

This will in turn benefit Kaufmann's, as it would increase its sales revenue. On the other hand, Parkleigh Pharmacy does not offer any sales commission to their employees. This is due to the fact that they are not selling products that would tend to attract middle income consumers, but instead offer only luxurious and expensive goods.
Based on these facts, it would be reasonable to assume that sales at Parkleigh Pharmacy will be less than sales at Kaufmann's. This drives the reasoning for Parkleigh Pharmacy to only offer their sales people an hourly wage with no opportunity for earning commissions on any sales that they make. However, they take a different approach in motivating their sales people by offering them a thirty percent discount on any items they purchase from the store. This type of fringe benefit is benefitting both…