Olympia Machine Company - Case Study Example

Marketing 6 November Olympia Machine Company A: What are the strengths and weaknesses of the current compensation plan atOlympia Machine Company? One of the strengths of the current compensation plan at Olympia Machine Company is that the volume of sales and gross margin earned by each salesperson is taken into consideration. This means that both the margin and sales volume have to be proportional. There is also equal ability for salespeople in various geographical areas to be remunerated; this is usually in terms of the going market rate.

Like employees, their salaries are considered as well as the salesperson’s value. Adding on to the salary and expenses plan, a review of the salesperson’s performance is done semi-annually or annually, which motivates him or her since the raising of the salary is based on this review.However, there are weaknesses in the current compensation plan. Regardless of the large volume of sales, there are high fixed selling expenses and also common measures that determine salary increases of the salespeople have not been established by the management.

B: What are the key issues that any new compensation plan must address? Some of the key issues that any new compensation plan must address include how to poise a balance between capital equipment and sales. A salesperson must be able to not just take any order that comes along but sell. Secondly, a weighted plan that allows a salesperson to assess what pays off and what does not should be addressed, in order for him or her to be more resourceful. Finally, there has to be a common standard where salary increases for all like employees should be known.

This is of importance since the management is able to weigh how prolific a salesperson is.C: Evaluate the strengths and weaknesses of the three plans on the table. Which one would you recommend? 1. Point SystemIn the point system, together with a salary, a salesperson is given bonus points in relation to his or her performance in the sales activities. However, with this system, detailed reports about the performances of the salespeople are required thus increasing the organization’s overhead cost.2. Salary and CommissionIn this plan, a salary, expenses and a commission on sales were taken into consideration.

This way, the salespeople had security because they were assured of a salary and were still motivated due to the commission rates incurred on several products. However, this would mean that the commission plan with specifications would result to a cut in current salary base for most salespeople.3. Bonus planThe bonus plan involved giving the salespeople an opening to earn bonuses from their sales, without putting a boundary past a target. They also received the same salary as before. However, upholding a liable sales-expense-to-sales ratio would go against the Company’s philosophy of upholding such.

I would therefore recommend the bonus plan. This is because there is the security in terms of getting the same salary as before, as well as earning bonuses for sales made without any limitations past a target. This plan would motivate the salespeople since an increase in sales volume would pay off. Also, the salespersons feel that their hard work is recognized hence they become more resourceful.Work Cited“Olympia Machine Company”. Harvard business School. 2011. PDF file.