QUESTION 22

1. Mary is a street food (sandwiches , hot dogs, drinks, etc.) seller in Nashville near the Titans stadium. Mary lives in Lexington, KY, and does not go to Nashville. She hired Tom to run the business for her. Due to its nature of the business, Tom takes cash only. Every month, Tom meets Mary in Lexington to report and turn in the sales revenue.

   Mary is very concerned about whether Tom is honest in reporting revenue. She wants to use a cheating-free performance evaluation/compensation method. Cheating includes: not working hard and/or pocketing the companys money. Under which of the following methods, Tom does not see an incentive to cheat?

   	A.	Pay Tom a flat salary of $3,000 a month.
   	B.	Pay Tom on a commission basis (50% of reported sales revenue).
   	C.	Pay Tom X, where X = [Reported revenue - $3,000], if X < 0, Tom has to pay Mary the absolute value of X.
   	D.	Pay Tom on an hourly basis ($30 x Reported Work Hours).
   	E.	Pay Tom based on the amount of gas used in cooking ($2 x Ounce of gas used). This also encourages Tom to work (cook) rather than being idle.

3 points

QUESTION 23

1. Carlos is from Mexico. He is trying to legally immigrate to the US. So he is going to hire an immigration attorney. The immigration process is so complicated and since Carlos does not know much about it. Therefore, Carlos has no way of telling how much time, efforts, and expenses are to be spent by the attorney. He does not even know whether his attorney will work hard.

   Carlos wants a compensation method that prevents his attorney from cheating on him (not working hard, lying, etc.). From the standpoint of Carlos, which of the following is the best way to compensate his attorney?

   	A.	Pay $2,100 up front regardless of the immigration petition outcome.
   	B.	Pay $1,000 up front. Only if immigration is successful, pay another $2,000.
   	C.	Pay $100 per work hour reported by the attorney.
   	D.	Pay 300% of the incurred expenses reported by the attorney.