1. Did Francesco and Luca do a good job of assessing the situation with respect to the compensation plan? What other information would you like to have that is not given? Francesco Rizzo established Forrest's Bike World, a retailer of bicycles and related parts and gear, in 2003 in Milan, Italy. The company saw steady growth in its first few years and had opened eight stores throughout Portland by the beginning of 2013. Francesco is the owner and acts as the general manager for all stores. Each store has one manager and four to six salespeople, with two to three working on the sales floor at any given time. Francesco himself is a bike enthusiast and rides more than 200 kilometers per week. He encourages his sales staff to do the same and looks for fellow bike enthusiasts when hiring. As a result, the sales staff generally loves to buy equipment from the store, especially since Forrest gives an employee discount of 10 percent.

Francesco's sales revenues increased by almost 15 percent each year for the first five years of the company’s existence. But since that time, sales revenues and profits have declined at approximately the same rate. According to Francesco’s analysis, the decline did not seem to have a single cause: a down economy, opening too many stores too quickly, rise of price from suppliers. He has tried to reduce costs to maintain consistent profits but has cut them to the point where the only remaining reductions would be to begin closing stores, which he does not want to do.