Question

Recently, the owner of a Trader Joe's franchise decided to change how she compensated her top manager. Last year, she paid him a fixed salary of $65,000, and her store made $120,000 in profits. What type of pay structure is being considered for the top manager?

A) Profit-sharing
B) Commission-based
C) Stock options
D) Merit-based incentive

Answer 1

The pay structure being considered for the top manager of a Trader Joe's franchise, which involves compensation tied to the store's profits, is commonly referred to as profit-sharing. This incentivizes the manager to improve the store's performance and enjoy the financial benefits of increased profitability.

Step-by-step explanation:

The type of pay structure being considered for the top manager at the Trader Joe's franchise, where the manager's compensation would be linked to the store's profits, is known as profit-sharing. This alternative to a fixed salary is designed to align the incentives of managers with the success of the business, rewarding them for improving store performance and profitability.

Under a profit-sharing plan, managers often receive a base salary with additional compensation that varies based on a percentage of the company's profits. If the company does well and profits increase, the manager's pay increases accordingly. This approach can motivate managers to work harder to maximize the store's financial success.