Mel's House of Cars is an automobile dealership that sells both new and used cars.Two other dealerships located nearer Mel's pay their salespeople a straight salary-they receive no commission for each car they sell.Mel has decided to pay all of his salespeople a commission on all car sales.Which of the following is most likely to occur as a result of Mel's decision?
A)Mel will have difficulty finding salespeople.Research by labour economists has found that most employees prefer the security of a salary to the uncertainty of being paid based on how much revenue they generate for their employers.
B)Mel will experience a principal-agent problem.Some of his salespeople will tend to shirk because they will not be paid if they sell no cars, regardless of how hard they work.
C)Mel will be able to hire some of the most productive salespeople who work for the other two dealerships.
D)Mel risks violation of federal law that regulates firms' compensation policies.

Question

Quizplus · Accepted Answer

By offering a commission on sales, Mel will likely attract the most productive and motivated salespeople who are willing to work hard to earn more money. These individuals may currently work for the other dealerships that offer only a salary. Option A is incorrect as research suggests that many employees prefer performance-based pay over salary. Option B is also incorrect as Mel can implement monitoring and performance evaluation systems to discourage shirking behavior. Option D is also irrelevant as there are no federal laws that regulate a firm's compensation policies unless they involve discrimination or violation of labor laws.

Mel's House of Cars Is an Automobile Dealership That Sells