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Would commission based compensation, where an employee is paid a commission on her total sales, give...

Would commission based compensation, where an employee is paid a commission on her total sales, give an incentive to the employee to control costs? Please give an explanation.

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Answer: The commission paid on performance basis to the employee is a cost for the company. The employee would always under this mechanism of commission-based compensation try to do more and more sales during each working cycle in order to increase her pay, which would in turn lead to an increase in costs for the company as well. The sole objective of the employee is to maximize sales done by her and hence, she would not be having any incentive to control costs rather she would only be interested in maximizing sales in every possible way.

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