Evaluate the proposed bonus system

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Reference no: EM132377281

Case 23-2 Industrial Electronics, Inc.*

Case attached below

Questions

1. Evaluate (i.e. discuss the pros and cons of) the current bonus system.

2. Calculate the bonus award (percent of base slary) that would be given to the manager of each of the following four divisions under the proposed new bonus system, These divisions are representative of the range of divison within IE.

3. Evaluate the proposed bonus system.

4. Propose a bonus system that you believe is optimal for IE. Why do you think your proposed system is optimal? Explain.

Problem 23-2.

Tarrell Company compensates its field sales force on a commission and year-end bonus basis. The commission is 20 percent of standard gross margin (planned selling price less standard cost of goods sold on a full absorption basis) contingent on collection of the account. Cus tomers' credit is approved by the company's credit department.

Price concessions are granted on occasion by top sales management, but sales commissions are not reduced by the discount. A year-end bonus of 15 percent of commissions earned is paid to salespersons who equal or exceed their annual sales target. The annual sales target is usually established by applying ap¬proximately a 5 percent increase to the prior year's sales.

Required:

a. What features of this compensation plan would seem to be effective in motivating the sales force to accomplish company goals of higher profits and return on invest¬ment? Explain why.

b. What features of this compensation plan would seem to be countereffective in motivating the sales force to accomplish the company goals of higher profits and return on investment? Explain why. (CMA adapted)

Attachment:- Case 23-2.rar

Reference no: EM132377281

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