Olympia Machine Company, Inc Case Solution

2. Basis for Recommendation

• The commission based salary would motivate the sales person to go an extra mile to achieve the sales. They would get the sense that their effort is being converted to some monetary benefits. At the same time, with 75% fixed salary, they would get a secure source of income and would not be discouraged or demotivated during the lower turnover season. The monitoring and control of the sales expense would prevent the sales person to inflate their salary.

• The commission rate should be set as per the sales related to the historical years. As a result, the high sales item would get more emphasis and company’s desire to focus on certain products can be achieved.

• The bonus plan is based on the quotas which are assigned on the basis of past year sales. So, the sales person has the incentive to produce lower sales just to get lower quotas for next year.

3. Background

Olympia Machine is a capital equipment provider and the replacement part manufacturer, which is providing the products for 100 years now. The company is in the middle of evaluation of the company’s current method for compensating the sales persons. Currently, the company is paying its employees a straight salary and expenses which the sales person incurred. The increase in pay was a result of the annual or semiannual review of the performance of which was mainly a product of the discussion between the manager and the employee; hence, it was a majorly subjective phenomenon. Moreover, the fixed selling was increased as a result of this plan. The straight selling also limit the selling efforts put by the dales person as they have less advantage to go the extra mile and they are going to get fixed salary. Therefore, the compensation plan was under consideration to make sure that the maximum selling efforts are put by the sales people.