High Powered Incentives Hyperion Tool & Dye bids for contracts to retool other companies' production lines. The compensation schedule for their sales staff includes a 2% commission for the first $350,000 in orders per quarter, 3% for the next $650,000,
and 4% for amounts over $1,000,000 . Hyperion is having trouble scheduling its staff for the jobs that they are awarded because the orders always seem to be awarded around the first and last days of a quarter. Why are orders bunched like this and how can Hyperion fix this?
Hyperion's sales staff has an incentive to delay or accelerate sales so that they fall into the quarter with the higher commission rate. For example, if a sales associate has been very successful during a quarter and has already sold over $1,000,000, she might be willing to give discounts to potential customers so as to earn the higher commission rate on the order. Alternatively, if at the end of the quarter, a sales associate has a potential order for $100,000 but has only $200,000 for the current quarter, he could offer a discount to push the sale into the next quarter so as to get a head start there.
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