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You have been hired as special consultant to the director of Human Resources at McKinsey (or some other firm that hires many business students).
1. Based on the principles of mental accounting, how should McKinsey structure their compensation package to maximize the number of offers accepted (recruiting)? Of course, we are not looking for the following answer: "Increase salaries." Assume that the total compensation is fixed.
2. How should McKinsey structure compensation to retain employees? Again, take total compensation to be fixed. HINT: How does mental accounting suggest different compensation packages might be required for recruiting and retention?
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