You run a company, GizmoNet, that produces gizmos.

You run a company, GizmoNet, that produces gizmos. Gizmo shook onto iPhones, allowing users to access the internet via a virtual reality interface.

Your company hires software engineers, who are employed for three periods. In period one, they must train at GizmoNet. In this period their total productivity is $10 million, and training costs are $8 million. In periods two and three (after the training) productivity is $17 million and $19 million, respectively. An engineer who received no training would have productivity of $10 million at any other firm in all three periods.


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Engineers can quit after training (and always get a job offer at other firms). If they do so, their productivity at other firms is $2 million lower than at GizmoNet in each of the last two periods. Assume no discounting.

Suppose now that the firm finds out that there are also less able software engineers (the group described above consists of the more able engineers). Less able engineers can earn $4 million in any period at another firm. GizmoNet does not want to hire less able engineers if possible. Engineers know which type they are, but the firm cannot tell at hiring. Less able engineers can always be detected by the firm after period one and fired. However, they can sue GizmoNet for wrongful termination. They win these cases 25% of the time and lose 75% of the time. If they win, your firm must reinstate them and pay?? ,??in periods two and three.

If they lose, they move on to firms that pay them $4 million. Ignore legal costs and court-imposed fines. Give one salary profile?? ,?? ,??that deters less able engineers from applying to GizmoNet, but still attracts more able engineers (there is more than one possible solution). Make the engineer pay for the training – charge him for the cost of $8 million – to keep things simple. Make sure that your solution provides zero profits for the firm. Briefly explain why this profile works.</pstyle=”margin-bottom:>


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