Rick is a car salesman working for a Ford dealership in Harrison, Ohio. He recei
ID: 1213197 • Letter: R
Question
Rick is a car salesman working for a Ford dealership in Harrison, Ohio. He receives a base salary of $800/month plus a 10% commission on the price above cost for every car that he closes a deal on.
a. Describe a situation in which this payment structure incentivizes Rick to behave in ways the company would not find desirable.
b. Based on your above answer, how could the dealership either change their payment scheme or introduce some company policy to incentivize Rick to behave in a way that is more profitable for the dealership?
Explanation / Answer
a. I think the company would not find desirable in paying Comission if his comission exceeds his per month Salary i.e 800/p.m.
b. In this case the Conpany the Compny can follow the below described payment stsructure.
This structure is as follows.
F.W.Taylor’s differential rate system
» 83% of piece rate when below standard
» 125% of piece rate when above or at standard
According to this formulae even if the employee sells more number of outputs, the Employer need not pay hgh amount of Bonus.
Merits
(1) It creates a collective interest in the work.
(2) High output and economical production is achieved.
(3) Jealousy among workers is prevented.
(4) It ensures better cooperation and team-spirit and reduction in absenteeism.
(5) Routing and scheduling are simplified.
(6) It reduces cost of supervision, cost of calculation of bonus and wastages.
Demerits
(1) An individual worker may not put his maximum effort in view of equal sharing of bonus by inefficient workers.
(2) Individual efficiency is not taken into account.
(3) There is difficulty in calculation of bonus to all workers in the group.
Suitability—Group incentive wage plan is most suitable in the following cases:
(a) Where it is not possible to measure the performance of each individual worker.
(b) Where the number of workers making a group is not very large.
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