Final answer:
An employee on commission can increase their pay fraudulently by falsifying sales records or misrepresenting sales. Such actions damage the trust inherent in commission structures and can lead to severe consequences for both the employee and the business.
Step-by-step explanation:
An employee on commission could fraudulently increase their pay by engaging in unethical or illegal actions such as falsifying sales records, misrepresenting sales, or colluding with customers to report higher sales figures. Such practices are not only against company policies but also can result in severe consequences including job termination, legal action, and damage to one's professional reputation.
Commission structures are popular with both economists and the general public due to the direct correlation between effort and reward; however, they also require a level of trust between employer and employee. If a dishonest employee takes advantage of this system, it undermines the business's financial integrity and can lead to a broader decline in moral standards within the company.
Considering a scenario where an employee alters the conditions of a sale to meet certain commission thresholds, not only is the employee gaining unlawfully, but the firm's reputation and bottom line can be negatively impacted. Additionally, other employees might be incentivized to engage in fraudulent behavior if they perceive that cheating is beneficial and goes unnoticed. In this environment, the company could face significant losses and face difficult decisions akin to those in dilemmas such as the prisoner's dilemma, where two parties must choose to cooperate or cheat without knowing the other’s decision.
Trust in a commission-based remuneration system is crucial for its effectiveness. The incentive to cheat may arise when an employee believes the potential gains outweigh the risks of getting caught. Businesses can mitigate these risks by implementing strict auditing processes, clear communication of anti-fraud policies, and the establishment of a strong ethical culture within the organization.