Firm X Is Observed to Pay More on Average Than

Multiple Choice

Firm X is observed to pay more on average than other firms to its sales force. Compared to other firms, it pays less salary but more commissions to its salesforce. The turnover in its salesforce is also higher than other firms. Firm X earns the same rate of return as other firms. Which of the following is most consistent with these facts?

A) Firm X must pay more because it is attracting a more risk-adverse sales force.
B) The higher pay reflects a greater investment by Firm X in the specific human capital of its salesforce.
C) The higher pay compensates the salesforce for putting more effort into selling, which in turn increases the productivity of its salesforce.
D) Its higher pay reflects a promotion-type tournament that sorts out those who don't want to work long hours.