Wonkies, Inc. is a large company that owns fast-food restaurants, has a soft drink division, and a snack division. Wonkies, Inc. corporate management gives its division managers considerable operating and investment autonomy in running their divisions. Wonkies, Inc. is considering how it should compensate Mark Hamm, the general manager of the snack division.■ Proposal 1 calls for paying Hamm a fixed salary.■ Proposal 2 calls for paying Hamm no salary and compensating him only on the basis of the division’s RI, calculated based on operating income before any bonus payments.■ Proposal 3 calls for paying Hamm some salary and some bonus based on RI. Q. The salespeople for the snack division of Wonkies, Inc. are responsible for selling and providing customer service and support. Sales are easy to measure. Although customer service is important to the snack division in the long run, it has not yet implemented customer-service measures. Hamm wants to compensate his sales force only on the basis of sales commissions paid for each unit of product sold. He cites two advantages to this plan: a. It creates strong incentives for the sales force to work hard, and
Wonkies, Inc. is a large company that owns fast-food restaurants, has a soft drink division, and a snack division. Wonkies, Inc. corporate management gives its division managers considerable operating and investment autonomy in running their divisions. Wonkies, Inc. is considering how it should compensate Mark Hamm, the general manager of the snack division.■ Proposal 1 calls for paying Hamm a fixed salary.■ Proposal 2 calls for paying Hamm no salary and compensating him only on the basis of the division’s RI, calculated based on operating income before any bonus payments.■ Proposal 3 calls for paying Hamm some salary and some bonus based on RI.
Q. The salespeople for the snack division of Wonkies, Inc. are responsible for selling and providing customer service and support. Sales are easy to measure. Although customer service is important to the snack division in the long run, it has not yet implemented customer-service measures. Hamm wants to compensate his sales force only on the basis of sales commissions paid for each unit of product sold. He cites two advantages to this plan:
a. It creates strong incentives for the sales force to work hard, and
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