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Not sure what you mean by "overall," but isn't this trivially contradicted? Salesman A sells $100 of product @ 40% margin, bringing in $40 of "profit," and is

Not sure what you mean by "overall," but isn't this trivially contradicted? Salesman A sells $100 of product @ 40% margin, bringing in $40 of "profit," and is paid $20. Salesman B sells $100 of product @ 40% margin, bringing in $40 of "profit," and is paid $41. The owner is up $20 from Salesman A, and down $1 from Salesman B, and can merrily continue overpaying Salesman B. "But no owner would do that because it's obvious that this is ridiculous." Certainly. But replace "Salesman A" with "QA Lead," and "Salesman B" with "Director of HR," and who knows who's contributing how much?

dredmorbius 10y ago
In theory: marginal productivity of labour. E.g., you start adding and/or cutting sales, QA, and director positions and see how the organisational performance responds. You'll also typically find (unless, say, you're a Google, Apple, Intel, and Cisco colluding with illegal mutual noncompete agreements on labour) that you're taking prices from the market on what people demand to be paid. In practice, the information's far less clear, and rules of thumb or gut feels get invoked a fair bit. But overall, yes: companies which are aiming for profitability have to balance their costs, including labour, with revenues.