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(25 Points) Chapter Twelve You were recently hired as the new vice president of sales because something needs to be done to increase sales...
1. (25 Points) Chapter Twelve 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?
a. 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.
b. Plan B: Give each salesperson a salary of $30,000 plus an 8 percent commission on all sales made during the year.
c. 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.
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
