Two months ago, the owner of a car dealership (and a current football star) sign

Question

Two months ago, the owner of a car dealership (and a current football star) significantly changed his sales manager's compensation plan. Under the old plan, the manager was paid a salary of $6,000 per month; under the new plan, she receives 2 percent of the sales price of each car sold. During the past two months, the number of cars sold increased by 40 percent, but the dealership's margins (and profits) significantly declined. According to the sales manager, "Consumers are driving harder bargains and I have had to authorize significantly lower prices to remain competitive." What advice should you give the owner of the dealership? Offer the manager a percentage of profits rather than sales. Increase the percentage of the sales price the manager receives. Pay the manager a fixed salary only

Explanation / Answer

Answer: Offer the manager a percentage of profits rather than sales.

This will incentivize the manager to strive for higher margin and also increase sales for higher profit and the manager will try every bit to remain competitive.

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