A payday loan company has decided to open several new locations in the city.To decide where to open these locations it hires consultants and pays them per store opened.At the end of the quarter,the company notices a many of the new stores' sales volume fail to meet expectations.To incentivize the consultants to instead focus on opening profitable stores,the company has decided to alter the compensation to a percentage of the profit earned per new store.The company should expect to

A) Pay the consultants more than they would per store
B) Pay the consultants less than they would per store
C) Pay the consultants the same
D) None of the above

Question

​A payday loan company has decided to open several new locations in the city.To decide where to open these locations it hires consultants and pays them per store opened.At the end of the quarter,the company notices a many of the new stores' sales volume fail to meet expectations.To incentivize the consultants to instead focus on opening profitable stores,the company has decided to alter the compensation to a percentage of the profit earned per new store.The company should expect toA) ​Pay the consultants more than they would per storeB) Pay the consultants less than they would per storeC) Pay the consultants the sameD) ​None of the above

Laetitia Davina · Accepted Answer

Final Answer : A, Explanation :  Switching the consultants' compensation from a per-store basis to a percentage of the profit earned per new store aligns their incentives with the company's goal of opening profitable stores. If the consultants are effective in selecting locations where new stores are more profitable, their earnings could increase because they are getting a share of higher profits, rather than a fixed fee per store regardless of performance.

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