You were recently hired as the new vice president of sales because something nee
ID: 456826 • Letter: Y
Question
You were recently hired as the new vice president of sales because something needs to be done to increase sales growth—sales have been flat the past two years. You are convinced that the sales force could turn things around for you, if only you could motivate your salespeople. One of your ideas is to change the compensation plan for next year. However, you don’t want to “break the bank” in the process. Your marketing manager has developed three different compensation plans for your review. Which of these will be the most expensive? Which will be the least expensive? Which plan would you adopt for your sales staff? Why?
Plan A: Give each salesperson a salary of $40,000. Once a salesperson reaches a sales volume of $400,000 during the year, an incentive bonus of 8 percent of all sales made during the year will be awarded. No bonus will be awarded for annual sales volumes of under $400,000.
Plan B: Give each salesperson a salary of $30,000 plus an 8 percent commission on all sales made during the year.
Plan C: Give each salesperson a commission of 15 percent on the first $420,000 of sales made each year and 25 percent commission on all sales made over $420,000. Below are the forecasted sales for next year. An Excel spreadsheet is available to help you in your analysis (the spreadsheet can be found at www.wiley.com/college/cron). Go to the Student Companion Site.
Salesperson Forecasted Sales for Next Year
Jagger $550,000
Costello $520,000
Keith $500,000
McCartney $475,000
Dylan $450,000
Timberlake $420,000
Clarkson $420,000
Lovett $400,000
Richards $400,000
Cash $360,000
TOTAL $4,495,000
Explanation / Answer
a) the most expensive plan is the Plan C. ($7,13,750 as the total expense)
b) the least expensive plan is the Plan B. ($659600 as the total expense)
c) I would adopt the plan B for my sales staff, as it is a combination of fixed and variable pay, fixed pay is lower than the plan A, but the variable pay is based on the amount the salespeople generate through sales, hence they will be motivated to achieve higher sales. In plan A also, there is motivation to achive higher sales, but for the sales staff those are new or less taleneted, or who couldn't reach for the $400,000 sales mark with their current and past performances, might give up and not try to achieve higher sales, plan B on other hand will keep them motivated as the more sales they achieve the higher they earn, even if they are not currently capable to achieve $400,000. Plan C on the other hand doesnot offer any fixed salary component, which might act as a demotivating factor for starters and amateur salespeople.
PLAN A : Sales person Forecasted sales SALARY BONUS % BONUS Jagger $ 5,50,000 $ 40,000 8% $ 44,000 Costello $ 5,20,000 $ 40,000 8% $ 41,600 Keith $ 5,00,000 $ 40,000 8% $ 40,000 McCarthey $ 4,75,000 $ 40,000 8% $ 38,000 Dylan $ 4,50,000 $ 40,000 8% $ 36,000 Timberlake $ 4,20,000 $ 40,000 8% $ 33,600 Clarkson $ 4,20,000 $ 40,000 8% $ 33,600 Lovett $ 4,00,000 $ 40,000 0% $ - Richards $ 4,00,000 $ 40,000 0% $ - Cash $ 3,60,000 $ 40,000 0% $ - TOTAL $ 44,95,000 $ 4,00,000 $ 2,66,800 Total expense $ 6,66,800Related Questions
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