You have recently been hired to manage a clothing store. At the moment, each of your...

You have recently been hired to manage a clothing store. At the moment, each of your salespeople are paid an hourly wage. The store's owner is not happy with the store's profits and has instructed you to modify the compensation of your sales staff.

Below are five potential approaches to compensating your salespeople. Rank them in order of their effectiveness at helping to increase the store's profits, with the most effective approach on top and the least effective approach at the bottom.

Piece rate: a salesperson receives a fixed amount of money for each article of clothing they sell.
Profit sharing: at the end of each quarter, each salesperson receives a percentage of the store's quarterly profit.
Commission: as part of their biweekly paycheck, a salesperson receives a percentage of the profit margin for each item they personally sold over the previous two weeks.
Quarterly bonus: if, at the end of a quarter, the store's revenue surpasses a benchmark level, each salesperson receives a bonus.
Revenue sharing: at the end of each quarter, each salesperson receives a percentage of the store's quarterly revenue.

Expert Solution

Answer :

The Ranking of the approaches are in the following from top(most effective) to bottom (least effective) .

Commission -This will always be a effective approaches and among these five it deserve to be on the top or in the most effective because as per the records , the comission has always worked wonder when it comes to profit increment or compensating the sales staff .It motivate the sales staff to work and sales more in order to earn more and that is why it is the most effective .
Quaterly bonus- Bonus is the surpplus which we get after attaining a particular target and yes if the target set by the store for its profit crossed by the sales people then both of them will be benefitted at the sames time.So it is effective after the comission approach and is rank 2nd in this
profit sharing- Profit sharing will also help the store increasing its profit by motivating the sales staff to work more so that profit will be more and their share will be large but it is not as effective and ok ok sort of approach
Piece rate -Piece rate is fair appraoch but not so effective when delaing with compensation of sales people or staff because it dont encourage much as compared to above approaches and that is why it is ranked 4th in this
Revenue sharing -This is not a good idea or the least effective approach for compensation of sales people and profit of the store because suppose if the company or store did not generated much revenue then still it has to give some share of it to the sales staff compensation and suffer the losses that is why it is least effective .

Have a good day !

Rahul Sunny answered 2 years ago

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