1) Consider the four problematic sales people (Caplan, Furness, Gibson and Eaton) at Milford. We have both quantitative and qualitative performance measures. In general, what is the value of considering qualitative performance measures and what are the risks? Do you think, in this case, the value outweighs the risks and Oates should rely on them?
2) Now let’s consider the compensation strategy.
a) What does “b” equal for the Milford sales force?
b) If you were to redesign the compensation strategy to use optimal incentives, what would you do?
c) Are risk and distortion concerns in your strategy? Why or why not?
3) Finally, let’s consider how Harry Oates should be evaluated and compensated.
a) What performance measure or measures should be used to evaluate him? Discuss risk, distortion and matching the measure to the job design.
b) How would you structure his pay package to encourage optimal effort and align his incentives with Milford’s incentives? (This answer should be based on the premise that compensation strategies can provide good incentives, as outlined in Chapter 10 of the textbook.)
c) In light of the ideas presented in “Six Dangerous Myths About Pay”, reevaluate your answer to part (b). What are possible concerns and criticisms to the compensation approach you outlined above?