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Given the compensation plans, analyze the plans and commission to sales people and the choice for life and auto insurance.

1. Analyzing Managerial Decisions: Structuring Compensation Plans
Parkleigh Pharmacy is a 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). Kaufmann's is a large department store chain, based in Pennsylvania, with several stores in the Rochester area. Kaufmann's carries a broader range of products and caters more to middle-income consumers.
Salespeople at Parkleigh are paid 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 Kauffmann's are paid an hourly wage (lower than the hourly wage paid at Parkleigh) plus a commission of 5 percent on sales they make. They receive no discount on products they buy at Kaufmann's on products they receive at Kaufmann's.
a) Why do you think compensation plans differ at the two firms? In particular, why do you think Kaufmann's pays commissions to salespeople, while Parkleigh doesn't? Why does Parkleigh offer employees discounts on purchases, while Kaufmann's does not?
b) Assume, for the moment, that neither store pays sales commissions. Parkleigh offers an hourly wage plus the employee discount. Kaufmann's offers only an hourly wage. Do you expect Kaufmanns's hourly wage to be higher or lower than Parkleigh's? Why?

2. Analyzing Managerial Decisions: Insurance Distribution Systems
Life insurance agents focus on selling policies. The company expects little follow-up in terms of providing ongoing customer service. In contrast, auto insurance agents often are expected to provide ongoing customer assistance after a policy is sold (answering questions about the policy, providing assistance in filing claims, and so on).
Some insurance companies use independent agents to sell their policies. These agents are paid solely on commission and are often allowed to sell the products of other companies (the agent presents the customers with a choice of plans across multiple companies). Other insurance companies hire their own agents. These employees are restricted from selling other companies' products and are sometimes paid a salary in addition to any commission they might receive.
a) Which type of insurance company, life or auto, is more likely to use the in-house agent? Explain. (Be sure to discuss why the in-house agent faces product restrictions and is not always paid on pure commission basis.)
b) Some auto insurance companies separate the tasks of selling and customer service and assign them to different people. Why do you think they do this?

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