Answer to Question #318322 in Microeconomics for hasthea

Question

You are the human resources manager for a famous retailer, and you are trying

to convince the president of the company to change the structure of employee

compensation. Currently, the company’s retail sales staff is paid a flat hourly

wage of $18 per hour for each eight-hour shift worked. You propose a new

pay structure whereby each salesperson in a store would be compensated $8

per hour, plus five-tenths of 1 percent of that store’s daily profits. Assume

that, when run efficiently, each store’s maximum daily profits are $40,000.

Outline the arguments that support your proposed plan.

Answer 1

The aim of any reasonable firm is to maximize its earnings. To induce maximum efforts from the workers such companies provide incentives to the workers so that the company achieves its main objective.

In the current setup where an employee receives a flat and fixed hourly wage of $18,there is no reward for the retail sales staff to push for more sales and boost the profits. Moreover, there is no penalty on the staff in case the sales go down and the profits are negatively affected.

In the proposed worker compensation structure where each of the retail personnel is compensated $8 per hour, plus five-tenths of 1 percent of the store’s daily profits, the staff is motivated to work harder to increase the sales and the profits of the firm. As a result each of the sales persons can devise new methods of ensuring more sales and hence profits are achieved and maximize their daily compensation. Taking care of their self interest will ensure that they will indirectly help in attaining the company's objective of maximizing daily proceeds to $40000 of each store.