Manager compensation plan in car dealership/ Managerial Economics
Two months before, the landlord of a car dealership (and a current football star) significantly changed his sales manager’s compensation plan. Under the old plan, the manager was paid a salary of $6000 per month: under the new plan she receives 2 percent of the sales price of each car sold. During the past two months, the number of cars sold increased by 40%, but the dealership’s margins (and profits) significantly declined. According to the sales manager, “Consumers are driving harder bargains and I have had to authorize significantly lower prices to remain competitive.” What advice would you give the owner of the dealership?
