Describe how a manager who derives satisfaction from both income and shirking al

Question

Describe how a manager who derives satisfaction from both income and shirking allocates a 10-hour day between these activities when paid an annual, fixed salary of $130,000. Time spent working: Time spent shirking: hours hours When this same manager is given an annual, fixed salary of $130,000 and 4 percent of the firm's profits-amounting to a total salary of $160,000 per year-the manager chooses to work 7 hours and shirks for 3 hours. Given this information, which of the compensation schemes does the manager prefer? OThe scheme with fixed payment of $130,000 and a percentage of profits. OThe manager is indifferent between the two payment schemes. O The scheme with only a fixed payment of $130,000.

Explanation / Answer

Answer : The manager for his maximum satisfaction will prefer the sceheme of - The scheme with fixed payment of $130,000 and a percentage point. This is because it will enable him to earn his minimum level of fixed income in addition to the extra profits. The other two options do not provide him with maiximum satisfaction as the income earned is less than what he can earn in case of first scheme. Thus, he prefers the first scheme.

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