How can a company structure its employees' commissions to incentivize them to maximize profit (rather than gross sales), without revealing to them the company's true cost of goods?

Accounting Dec 08, 2020

Expert Solution

A company can use the strategy of providing an incentive that is paying for performance. This strategy encourages the employees to work hard and give their best, which makes them effective for the company. There is no need to reveal the company?s actual cost of a good to them as they only focus on their incentive, not the cost of the good. A company can provide incentives as the proportion of profit, or it can be the same level of incentive for every employee according to their performance.

By this way, a company can structure its employees' commissions to incentivize them to maximize profit without revealing to them the company's true cost of goods.

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