A salesperson if lucky can sell $200,000 if she works hard, and if the salesperson is lucky but does not work hard she will sell $150,000. If she is unlucky, she can sell $150,000 if she works hard and $100,000 if she does not work hard. The added effort and time to work hard costs the salesperson $25,000 (that is, she must get a minimum

$25,000 extra to work hard). The employer cannot tell if the salesperson is lucky or not, nor can the employer tell if the salesperson is working hard. The salesperson, if she quits, could earn

$60,000 every year at another firm (without having to work hard at that firm). Compare the following pay packages for their cost to the firm and for their ability to motivate the worker:

Plan A: Pay the salesperson $90,000 every year and demand hard work.
Plan B: Pay the salesperson what she sells.
Plan C: Pay the salesperson $60,000 plus 60 percent of what she sells.
Plan D: Pay the salesperson $60,000 plus 60 percent of what she sells over $100,000.