2. John is a car salesman working for a Chevy dealership in Houston, Texas. He r

Question

2. John is a car salesman working for a Chevy dealership in Houston, Texas. 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 John 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 John to behave in a way that is more profitable for the dealership?

Explanation / Answer

a.

In a given scenario, John will try to sell only those models of car whose price is high. It will help John to get higher amount of incentive even if he sells only one car.

b.

Company should also include the provision of selling number of cars in payment structure. For example, on the sales of first 5 cars = 5% incentive on prices above cost

Next, on the sales of next 10 cars = 10% incentive on prices above cost

Next, on the sales of more than 15 cars = 12% incentive on prices above cost.

Besides, company can fix the maximum incentive in dollar terms on the sale of each car.

Above initiatives will encourage john to sell more number of cars to maximize his incentives.

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