Optimal Input Mix

Optimal Input Mix. Brisco, Van Buren & Associates is a New York City based law firm. Anita van Buren, managing partner of Brisco, Van Buren is reviewing the firm's compensation plan. Currently, the firm pays its staff attorneys salaries based upon the number of years of service. The value of billable hours generated by each staff attorney during the past year are as follows:

Van Buren believes some adjustment to the compensation paid all staff members would be appropriate. Van Buren is considering changing from the current compensation plan to one whereby each staff member would be paid a salary equal to 10% of client billings (gross revenue generated). Van Buren sees such a plan as fairer to the parties involved and believes it would also provide strong incentives for needed client development.
A. Calculate Brisco, Van Buren's salary expense for each employee expressed as a percentage of the client billings generated by that individual.
B. Calculate income for each employee under a 10% commission-based system.
C. Will a commission-based plan result in efficient relative salaries, efficient salary levels, or both?

Correct Answer:

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