5. A firm offers an individual a job paying $40,000 per year selling widgets. The employee counter-offers by requesting that he be paid $2,000 per widget sale that he closes. Which pay structures are being discussed?
Answer: B
The firm is offering fixed compensation, while the employee is requesting variable compensation.
The firm is proposing a fixed salary of $40,000 per year, which is a stable form of compensation. In contrast, the employee's counter-offer of $2,000 per widget sale introduces a variable compensation structure based on performance.
A) The firm is offering fixed compensation and the employee is requesting fixed compensation
This option is incorrect because the firm's salary of $40,000 is indeed fixed, but the employee's request for $2,000 per sale indicates a desire for variable compensation based on their performance, not fixed compensation.
B) The firm is offering fixed compensation, while the employee is requesting variable compensation
This option is correct as it accurately describes the situation. The firm's offer is a fixed annual salary, while the employee's counter-offer introduces a variable component based on the number of sales made, which is contingent upon their performance.
C) The firm is offering variable compensation and the employee is requesting variable compensation
This option is incorrect because the firm is not offering variable compensation; it is providing a fixed salary. Thus, it fails to capture the nature of the pay structures being discussed.
D) The firm is offering variable compensation, while the employee is requesting fixed compensation
This option is incorrect as well. The firm does not offer variable compensation, and the employee is not requesting fixed compensation but rather a performance-based pay structure, indicating a misunderstanding of the terms.
Conclusion
The correct answer, Option B, highlights the distinction between fixed and variable compensation structures effectively. The firm's fixed salary contrasts with the employee's variable pay request, showcasing the different approaches to compensation that are being negotiated. All other options misrepresent either the firm's offer or the employee's request, failing to address the core concepts of fixed versus variable compensation.