Parkleigh Pharmacy is a small department store in Rochester, NY, specializing in upscale, expensive personal accessories (e.g., sunglasses, beauty aids, leather goods) and home decorations (e.g., crystal, china, table lamps). Macy’s is a large national department store chain with several stores in the Rochester area. Macy’s carries a broader range of products and caters more to middle-income consumers.
Salespeople at Parkleigh are paid a straight hourly wage (i.e., no sales commissions). In addition, they are entitled to a 30 percent discount on anything they buy at the store. By contrast, salespeople at Macy’s are paid an hourly wage (lower than the hourly wage paid at Parkleigh) plus a commission of 8 percent on sales they make. They receive no discount on products they buy at Macy’s.
Why do you think the compensation plans differ at the two firms? In particular, why do you think Macy’s pays commissions to salespeople, while Parkleigh does not? Why does Parkleigh offer employees discounts on purchases, while Macy’s does not?
Assume, for the moment, that neither store pays sales commissions. Parkleigh offers an hourly wage plus the employee discount. Macy’s offers only an hourly wage. Do you expect Macy’s hourly wage to be higher or lower than Parkleigh’s? Why?
A final paper that focuses on the course content applied in the setting of your current or past employer will be due. In this paper you will focus on the following: · Provide a description of the company that you work for. As part of your description include a discussion of the type of organizational structure. · Describe an agency problem within the firm and discuss what you think is causing the problem and how the problem might be better controlled. · Describe the job dimensions of the firm and discuss whether or not you believe the current design is appropriate for the firm. Discuss any suggestions you might have for improving the job design; for example grouped by function or by product or geography or a matrix organization? Provide a diagram if helpful to illustrate. Is this organization effective?
Sample Answer
That's a great analysis of compensation and organizational structure in a retail context! Let's break down the differences between Parkleigh Pharmacy and Macy's and then discuss the structure of your upcoming paper.
🛍️ Comparing Compensation Plans
The differences in compensation plans between Parkleigh and Macy's are likely driven by their business models, product types, target customers, and the sales role required. This is a classic example of designing incentives to align employee behavior with organizational goals.
Why Macy's Pays Commissions (And Parkleigh Doesn't)
Feature
Parkleigh Pharmacy
Macy's
Rationale for Compensation
Product Type & Price
Upscale, expensive, luxury, specialty (crystal, fine accessories). High margin, low volume.
Broad range of products, middle-income market. Lower margin, higher volume.
Sales Process
Requires personal attention, product knowledge, consultative selling, and building long-term relationships (customer retention). Sales are less frequent but high-value.
Focuses on transaction speed, stocking, and processing a large volume of standardized, frequent purchases.
Commission Suitability
Not suitable. A commission might encourage high-pressure sales tactics that could damage the long-term relationship and upscale image. The goal is quality service and customer experience. A straight wage encourages helpful, non-aggressive service.
Highly suitable. A commission incentivizes employees to actively close a sale and maximize the number of transactions, aligning with the high-volume business model.
Risk/Reward
Store absorbs sales fluctuation risk. Salespeople have stable income.
Salespeople share in sales fluctuation risk. Higher incentive for effort and productivity.
Key Takeaway: Macy's uses commissions to drive sales effort and volume. Parkleigh uses a straight wage to ensure high-quality customer service and preserve its upscale brand image.
Parkleigh: The store sells specialty, upscale, and expensive items (e.g., designer sunglasses, fine china). Offering a $\mathbf{30\%}$ discount serves as a powerful form of non-cash compensation that also acts as a marketing/training tool.
By purchasing and using the products, the salespeople become more familiar with the merchandise, which is crucial for consultative selling (e.g., knowing how the crystal feels, how the leather ages).
Wearing/using the products turns the employees into brand advocates and a "walking advertisement" for the upscale goods.
Macy's: Sells a high volume of lower-margin, middle-market items. A $\mathbf{30\%}$ discount on a broad range of products could significantly erode their profits. They primarily rely on cash compensation (wage + commission) to drive sales.
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