Methods of Payment Exercises

A John Jones is offered a choice of terms as a salesman for the products of a company. He may be paid a fixed salary of £30,000 plus commission on his total sales at 5%, or a salary of £4,000 plus commission at 7.5% but only on sales exceeding £50,000 in value per year. Assume that total sales for the year will amount to £70,000 in the first year and £85,000 in the second year.

Which formula will give John the higher total remuneration in the first year? And which in the second year?

B Jan Peters, who is very interested in and knowledgeable about electronics, has a choice of two jobs. One is with a branch of a multiple retail chain selling radios, TV sets, music centres, etc. She would receive a weekly wage of £48 for a 40-hour week. No overtime is worked, but once a month the branch staff share, in proportion to their basic pay, a bonus of 3% of total branch sales in the preceding month. Jan's basic wage will be precisely one-tenth of total branch wages.

The branch manager has told her that the value of sales is averaging £56,000 a month. No specific training is given as the job is largely selling and customer relations. Young assistants qualify by merit, at the manager's discretion, for seniority rises in pay of up to £5 a week each year. Two weeks' paid holiday is allowed, for which the employee would also qualify for his sales commission. Jan would take three weeks' holiday so would forfeit pay and commission for the extra week. Prospects for promotion to branch manager are small.

The other job is that of management trainee with a medium-sized local electronics manufacturing company. Starting salary would be £4,000 per annum. Comprehensive formal training is given during company time and with her ability Jan feels she could expect to be appointed an administrative assistant on the technical development side in a year's time on a salary of £5,500. There is no overtime, bonus or commission, but the company operates a modest pension scheme, supplementary to the state scheme, of which Jan would become a member. The company itself, from its own resources, pays into the fund a sum equivalent to 8% of each employee's salary, the employee contributing nothing. Three weeks' paid holiday is the annual entitlement.

Ignoring the effects of inflation on both pay and prices,

(a) calculate approximate total value of remuneration before tax from

each job for the first year of employment;

(b) without detailed calculations, say which job seems likely to pay the higher total remuneration for the second year, briefly stating what factors you take into consideration in making your decision.

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