PART A: What are the advantages and disadvantages of paying the new manager prim

Question

PART A: What are the advantages and disadvantages of paying the new manager primarily cash pay?

PART B: What are the advantages and disadvantages of paying the new manager primarily on new store sales growth?

PART C: What compensation structure would you recommend? Why?

Abramson's Jewelers has established a strong niche market in the upscale jewelry store segment. Abramson's was founded in 1871, and its current single-store location is owned and operated by John Wickersham, who bought the firm from its namesake founders in 1985. Over the last 15 years, Mr. Wickersham has narrowed the company's product offering considerably to focus only on high-end watches like Rolex and Piaget, custom jewelry, and estate jewelry. Mr. Wickersham stresses that this is an appropriate focus for his business since each of the products lends itself to relationship selling, and price rarely comes into the discussion. Despite the narrower offering, Abramson's floor space has doubled, and clients are intensely loyal to the good taste, design skills, and personal service level provided by Mr. Wickersham. After evaluating several expansion options, Mr. Wickersham has decided to open another store in a neighboring city. While it is likely that some of his existing customers may begin doing business at the other location, thus lowering sales volume at the original store, Mr. Wickersham sees this as a desirable increase in the level of service and convenience he can provide his existing clientele. At the same time, he believes that he will be able to grow the overall business faster with two locations. He has identified another reputable gemologist, Jill Diamond, to run the other store and is now considering how to compensate her.

Explanation / Answer

Part A

Advantages of paying the new manager primarily cash pay is that it will provide a certainty on the payment the manager would receive each month ensuring retention and reducing the pressure of sales.

Disadvantage of paying the new manager cash pay is that it will increase the complacency of the manager over normal sales and reduces motivation to work harder to increase the sales of the store and bringing in new customer accounts.

Part B

Advantages of paying the new manager primarily on new store sales growth ensures the manager focuses on the target and works towards increasing the sales of the new stores by attracting new customer accounts and selling new models, designs to existing customer.

Disadvantage of paying the new manager based on sales growth will result in increased pressure to perform well and no guaranteed payment that will demotivate him.

Part C

The compensation structure that I would recommend is a mix of fixed cash pay and a variable pay based on the sales growth of the new store as it will create a security of pay for the manager while also create the motivation to work hard.

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