(a) Which compensation method (the old one or the new one) will the manager prefer? Please explain why. (b) Which compensation method (the old one or the new one) would the owner of the franchise prefer? Please explain why. (c) If there was another compensation pack offered where the worker would get a flat salary of $30,000 and 10 percent of the profits (expected profits are still $280,000), would the worker prefer this offer or would the worker prefer getting a flat salary of $65,000? Please explain why.
Recently, the owner of a Trader Joe's franchise decided to change how she compensated her top manager. Last year, she paid him a fixed salary of $65,000, and her store made $120,000 in profits (not counting payment to her top manager). She suspected the store could do much better and feared the fixed salary was causing her top manager to shirk on the job. Therefore, this year she decided to offer him a fixed salary of $30,000 plus 15 percent of the store's profits. Since the change, the store is performing much better, and she forecasts profits this year to be $280,000 (again, not counting the payment to her top manager). Assuming the change in compensation is the reason for the increased profits, and that the
(a) Which compensation method (the old one or the new one) will the manager prefer? Please explain why.
(b) Which compensation method (the old one or the new one) would the owner of the franchise prefer? Please explain why.
(c) If there was another compensation pack offered where the worker would get a flat salary of $30,000 and 10 percent of the profits (expected profits are still $280,000), would the worker prefer this offer or would the worker prefer getting a flat salary of $65,000? Please explain why.
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