Whilst speaking to a family member about her workplace, I discovered a problem their management was facing, with incentivizing the sales team. Previously, they operated on a system where everyone shared a commission based on sales generated by the team; but the new system entails charging sales to individual salespeople based on who eventually closes a retail sale with the customer at the till.
As probably expected, the result was that salespeople begin ‘snatching’ customers by bringing them to the till while their colleagues helped obtain a pair of shoes or a dress of the right size for them at the storeroom. Instead of creating additional sales, the system merely redistributed commissions across different salespersons, and in a way that is not encouraging effort.
Previous system was scrapped because there were free-riders in the sales team but the new system didn’t work very much better. Question is, how much is the firm trading off and what exactly is optimal from the perspective of the management?