You are the owner of a clothing retail store in Manhattan that sells brand name clothes, including high-end clothing brands. Your retail salespersons are paid a mean hourly wage of $12. Over the last several months, your sales have significantly declined and customer satisfaction surveys indicate that your customers are increasingly dissatisfied with the quality of service. You just took anonlinecourse in managerial economics in which you learned about the concepts ofefficiency wageandprincipal-agent problem.To what extent should you apply these two concepts to increase the motivation of your retail salespersons? Should you pay efficiency wages?

Should you redesign the structure of compensation in terms of fixed pay (hourly wage) and variable pay (bonus, commissions...)?