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Appropriate for the two distinct environments

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Reference no: EM132759015

This week we covered a range of topics

Rational decision process (decision wheel)

Role of data analysis /evidence in effecting good decisions (evaluation of alternatives)

The role of incentives for employees for achieving business objectives (rational actor paradigm).

In this discussion forum we further explore the topic of rational actor paradigm, which asserts that individual managers respond rationally to their performance incentives. What if the incentive plan is misaligned with overall business objectives of the firm? The rational actor framework posits that the process will not produce desired outcomes because employees will respond rationally to the misaligned incentive structure. You are asked to apply this thought to sales personnel and the sales commission plans.

Commission based compensation plans relies relatively more heavily on sales revenue and less on a base salary, while target-based compensation plans balance base salary alongside sales commissions. Consider the decision by management in selecting the right plan for their sales team. What if the company is in a "mature market" with longer sales cycles, unequal geographic potential, and sales is more of a team effort? In contrast, what if the company operates in a "high-growth market" with shorter sales cycles, relatively equal geographic potential, and company sales is driven by sales people with relatively less sales support?

-What sales compensation plan would be appropriate for the two distinct environments?

-What are likely consequences to the business by adopting a misaligned/misguided sales compensation plan?

Reference no: EM132759015

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