Arck Systems E

9-911-060
REV: JUNE 27, 2011
IAN LARKIN
Arcck Systtems (E
E)
Six
x months after instituting g the rule thaat senior man
nagement wo
ould not hav
ve to review deals
smalleer than $200,000 in size, the number of discount requests retu urned to norrmal. Mynorr was
satisfiied that his ru
ule had the in
ntended effectt.
On
n an otherwisse lazy Friday y afternoon, a finance anallyst knocked on Mynor’s d
door. “I thin
nk you
should look at this,” he said, an
nd handed My ynor a report (Figure 1).
“T
This looks likee a non-standa
ard report,” Mynor
M said to
o the analyst. “Where did you get it?”
“I created it myyself,” the anaalyst replied. “I noticed soome strange ppatterns in Laamar Snow’s sales,
so I queried
q the sa
ales database on all his salles to a singlee customer in
n the last seveeral weeks. Y
You’re
lookinng at the resu
ult of that querry.”
My ynor stared at
a the report in disbelief. “I can’t beliieve this!” hee thought. H He did some quick
math – Snow had d sliced up a $9.4 million deal into 477 pieces, seem mingly to avooid the scrutiiny of
seniorr managemen nt. The list price
p of this deal
d was nearlly $63 million
n, meaning thhe discount LLamar
Snoww gave Pretoriia Health Carre cost Lux So oftware nearlyy $45 million
n. Even if the deal was solld at a
45% discount,
d whicch would be relatively
r larg
ge, Snow’s gaaming cost thee company ov ver $25 millio
on.
Fu
uming, Bryan n Mynor deccided it was time to folllow his origiinal intuition n and reducee Lux
Softw
ware’s accelera
ators. He kn new that top salespeople
s w
were likely too leave since they would ttake a
pay cut. Howeverr, he felt thatt if developed d a plan wheereby the averrage salespersson was paidd more
than under
u the preevious plan, Lux
L Software would both in ncrease reten
ntion of the av
verage salespeerson,
and be
b in a better position
p to atttract new saleespeople.
Myynor sketched
d out a plan whereby he would
w raise L
Lux Softwaree’s base commmission from 4% to
11%, and included
d a single 0.5x on in quarterrly sales. Alll other accelerrators
x accelerator at $1.5 millio
were completely eliminated.
e Looking
L at Lu
ux Software’ss pay distribu
ution, he calcu ulated the old
d and
new pay
p for salesppeople at each
h decile level:
_______
_______________
_______________
________________
___________________________________________________________________
Professo
or Ian Larkin prepa ared this case. The companies mentiooned in the case aree fictional. HBS casses are developed ssolely as the basis for class
discussiion. Cases are not in data, or illustrationss of effective or ineffective managemeent.
ntended to serve ass endorsements, sources of primary d
Copyrigght © 2011 Presidennt and Fellows of Harvard

H College. To
T order copies or request permissionn to reproduce maaterials, call 1-800-5545-7685,
write Haarvard Business School Publishing, Booston, MA 02163, or
o go to www.hbsp p.harvard.edu/edu ucators. This publicaation may not be ddigitized,
photocoopied, or otherwise reproduced, posteed, or transmitted, without
w the permisssion of Harvard Bu
usiness School.
This document is authorized for use only in Prof. James P.'s Human Capital Management 11.23.2021 at IFIM Business School from Nov 2021 to May 2022.
911-060 Arck Systems (E)
Pay percentile Total Sales Old Pay New Pay

1st $19.0mn $3.6mn $2.8mn
10th $5.9mn $800,000 $670,000
20th $4.4mn $550,000 $480,000
30th $3.6mn $390,000 $384,000
40th $1.7mn $170,000 $175,000
50th $1.4mn $130,000 $142,000
60th $1.3mn $115,000 $131,000
70th $1.2mn $95,000 $120,000
80th $1.1mn $80,000 $109,000
90th $800,000 $55,000 $76,000
99th $150,000 $32,000 $32,000
“That should do the trick,” Mynor thought. Nearly 70% of salespeople would see a raise under
the new system, and the system also paid for itself. The system paid top performers far less, and also
would cut down on rampant price discounting due to the perverse incentives of the accelerators.
“We can keep our bread-and-butter salespeople, and just be more like Arck, without such a wide
disparity in sales performance. Sure, we’ll lose a bunch of high performers, but the plan will pay for
itself in the long run. Our margins will increase by 10%. Our average commission rate will drop by a
few percentage points. Our retention of 50th percentile salespeople – who are really very good – will
go way up. And the improvement in our corporate culture will be priceless,” Mynor thought to
himself. He began drafting an email to Sharon Esteves about the changes he planned to make.
Arck Systems (E) 911-060
Figure 1 Results of finance analyst’s query on Lamar Snow’s daily sales to Pretoria Health Care
Date Customer Sale amount Discount

9-Jan Pretoria Health Care $199,999.99 85%
1-Feb Pretoria Health Care $199,999.99 85%
Source: Casewriter.

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9-911-060

REV: JUNE 27, 2011

Copyrigght © 2011 Presidennt and Fellows of Harvard

Pay percentile Total Sales Old Pay New Pay

Date Customer Sale amount Discount

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