ANALYZING MANAGERIAL DECISIONS: Structuring Compensation Plans
Parkleigh Pharmacy is a small department store in Rochester, NY, specializing in upscale, expensive personal accessories (e.g., sunglasses, beauty aids, leather goods) and home decorations (e.g., crystal, china, table lamps). Kaufmann's is a large department store chain, based in Pennsylvania, with several stores in the Rochester area. Kaufmann's carries a broader range of products and caters more to middle-income consumers.
Salespeople at Parkleigh are paid a straight hourly wage (i.e., no sales commissions). In addition, they are entitled to a 30 percent discount on anything they buy at the store. By contrast, salespeople ...view middle of the document...
Since there are typically more middle-income stores Kauffman’s may have the sales incentive to try and push the products and not worry so much about the store environment or customer satisfaction.
Assume, for the moment, that neither store pays sales commissions. Parkleigh offers an hourly wage plus the employee discount. Kaufmann's offers only an hourly wage. Do you expect Kaufmann's hourly wage to be higher or lower than Parkleigh’ s? Why?
Assuming that the employees at both stores are identical, we expect that that Kauffman’s hourly wage would be higher. Since the employee discount is included in the compensation package at Parkleigh we would assume that Kauffman’s wage would need to be higher. Wage plus discount at Parkleigh would need to equal just the wage at Kauffman’s, therefore, the overall wage at Kauffman’s should be higher.
ANALYZING MANAGERIAL DECISIONS: Granting Stock Options (Chapter 15)
Bobby's Burgers is a large restaurant chain with nearly 10,000 units worldwide. It is experiencing incentive problems among its outlet managers. The managers are not working very hard and are letting quality deteriorate at their units. CEO, Bobby Jones, is considering a stock plan where each unit manager would be given 500 shares of stock in Bobby's Burgers. He reasons that making the managers...