About Commission and Profit Sharing Pay Systems
sells high-quality women’s, men’s, and children’s clothing. The store employs a
sales staff of 11 full-time employees and 12 part-time employees. Until
recently, all sales staff were paid a flat salary and participated in a
profit-sharing plan that provided benefits equal to about 5% of wages.
Recently, the manager and owner of Belleville Fashions announced that in the
future all compensation would be commission based. The initial commission rate
was set equal to the rate that would have caused the actual wage bill based on
the old system to be equal to what the wage bill would have been under the
commission system. Profit sharing was discontinued.
Required:
a. What do you think of this change?
b. Describe some of the reactions that the owner might hear
from the sales staff when announcing the change.
c. Do you think that the method of determining the
commission rate was appropriate?
d. Describe what you think will happen under the new system.
ScholarMatic: Explanation & Answer
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