If theyve just started a family, they may be looking for benefits like parental leave and the chance to work from home. If a salesperson earns more commissions than he was paid, he keeps the extra money. It assures a steady minimum income to the salesmen. This type of compensation plan puts less pressure on individuals and fosters team-building. \begin{array} {rcrcrcrcr} As the name suggests, straight salary compensation is just what you would expect. Following are the advantages of the straight commission plan: Pay relates directly to performance and results achieved. Many appreciate the fallback stability of the base salary paired with performance incentives. Millennial Accounting primarily serves two nichesreal estate and property managementand is on a mission to serve, inspire, educate, and problem-solve. && +1,500\\ 6. The content on MBA Skool has been created for educational & academic purpose only. This compensation type tends to attract fewer people since there is no secure base pay. The company uses a combination of brokers and independent sales reps. What kind of a compensation program would they most likely to use for their salespeople? The ATO considers this $80,000 taxable income. When the salesmen are required to create markets for a product. }\\ Everything you need to start accepting payments for your business. In your job analysis of the salesperson's activities, you discover that a significant level of activity of a successful salesperson includes taking orders for inventory replenishment, equipment installation and maintenance, and shelf-management programs. With ambitious expansion plans, BIA has decided it needs a second service hub on the continent, to complement its large Heathrow (London) repair facility. Employees may be confused as to how pay is calculated, so transparency is important. It does not distinguish between efficient and inefficient salesmen, as the same remuneration is paid to both efficient and inefficient salesmen. . https://quickbooks.intuit.com/oidam/intuit/sbseg/en_us/Blog/Photography/Stock/b865e494cb3a98c7739d65e0c9442b1c.jpg, https://https://quickbooks.intuit.com/r/payroll/employee-compensation-benefits-guide/, The complete guide to employee compensation and benefits | QuickBooks, In my experience, both in the corporate (salary) and retail (hourly) space, an employee compensation plan encompasses salary or, How to find a balance between employee pay and benefits, Companies often feel they can justify a lower salary or rate if they include a more robust benefits package. A salesperson makes the initial contact and sets the stage for the sale, while others such as product experts or management personnel are brought in to help him close the deal. Which of the following is not a guideline recommended in the management of motivation? You are the sales manager of a large, multi-product company. the following except. Per the IRS definition, the contractor is in control of how the work gets done, so there is a lot of freedom. determine the relative amounts to be paid in salary, commission, and bonus. 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Companies often feel they can justify a lower salary or rate if they include a more robust benefits package. Based on this information, which salesperson compensation plan would work best? This type of compensation plan is every salespersons dream. What is salary pay? It gives greater control to the management over the salesmen by means of withholding increments, effecting a transfer, etc. It could reduce retention and increase turnover. In the same vein, contractors are not subject to withholding and are therefore responsible for their own taxes (the self-employment tax). The advantages of straight salary compensation include which of the following? On the other hard, straight commission method does not give the management sufficient control over the salesmen. View the full answer. Purely paid-by-commission plans can create an unfriendly, competitive environment within teams. Because so many hourly employees work in entry-level positions, education requirements are usually lower than those of salaried positions, which adds to this assumption. Person A receives a salary of $80,000. Although many customers expect after-sale service on repair parts and delivery, compensation programs based on straight salary are not likely to encourage these important follow-up activities. Under this plan, companies compensate its employees entirely on the profits made by the business. Companies are increasing incentives for foreign-based employment. Differences between Straight Salary and Straight Commission Method, Business Environment Analysis | Objectives & Process, 5 Important Classification of Business Environment, Localisation of Industries | Meaning, Advantages, Disadvantages, Storage and Warehousing | Meaning, Functions, Advantages, Kinds, Sole Trader Business | Advantages | Disadvantages | Suitability, How do Business Diversification affect performance of, Job Evaluation | Meaning & Definition |, Supervision | Definition | Functions of supervisor, Sole Trader Business | Meaning | Definition, Primary functions of Commercial banks in accepting, RBI | Origin | Objectives | Organization, Concepts of Job Analysis | Meaning, Procedure,, Arguments in favor of Social Responsibility of, Accountlearning | Contents for Management Studies |. Motivated salespeople may search for this type of income, knowing that if they work really hard early on, they can work less later and still make the same income. As the Vice President of Sales for a new startup company, you decide to hire and train your own field sales force. For example, consider a salesman who frequents various retail stores or department stores to check inventory or take orders for replenishment. This can lead to high turnover, a need for more recruitment resources, and higher training costsall of which cuts into potential bottom-line savings. Helps management to control salespeople's activities. Estimate the percentage of NCAA games in which the winning team The reward system practiced by the majority of consumer and industrial firms is, Industries that have traditionally used a straight-commission-based compensation pay plan include all of Are they just trying to pay their way through college? Running payroll for hourly employees, as opposed to salaried employees, can also be significantly cheaper, making it easier for companies to hit financial goals. This compensation category also includes restaurant employees paid mostly in tips. \textbf{\textsf{Liabilities}} & \bm{+} &&&\textbf{\textsf{Owner's Equity}}\\ The salary-plus-commission pay structure also encourages employees to set more aggressive sales goals. Once the person has established himself in the area, the company can switch to performance-based salary. It tends to eliminate or reduce high-pressure selling, i.e., pushing items which are not needed by the customers. 6. \text{Wisconsin} & \text{76} & \text{Illinois} & \text{56} & \text{20}\\ The major drawback to salary plus commission plans is that they are more expensive and more costly to administer. It is a very useful system of remunerating newly-appointed salesmen who are new to the job. This leaves the salespersons with no opportunity for extra money or incentives. It helps the firm to direct the activities and efforts of the salesmen towards the cultivation of markets (i.e., creation of new customers), undertaking of window display, store demonstration, etc. Guaranteed income With a salary plus commission plan, you still earn a base salary regardless of how many products you sell. Copyright 2023 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. What are the most popular types of compensation packages? Advantages of Straight Salary Method 1. If you choose this plan, you'll pay your reps using a mix of base salary and performance-based rewards. \text{Stanford} & \text{77} & \text{Southern Cal} & \text{67} & \text{10}\\ Plan B is to issue 100,000 shares of common stock. Another disadvantage is that hourly employees often have fewer benefits than salaried employees and are sometimes required to contribute more toward their health insurance premiums. This is a primary method for compensating independent sales agents. Sales jobs consisting primarily of Account Management involve a greater account servicing component and are therefore better suited to a primarily __________. \hline\\ The advantages of paying employees a straight commission include the fact that it provides direct motivation to sales representatives to sell more products and services so they can earn more. \text{Winning Team} & \text{Points} & \text{Losing Team} & \text{Points} & \text{Winning Margin}\\ The amount of mental and physical effort put forth by the salesperson is referring to, The salesperson's choice to expend effort over a period of time, especially when faced with adverse, The motivation task is incomplete unless salespeople's efforts are. Under this method, there is no direct relationship between sales revenue and selling costs. pharmaceutical sales) is the most common type of sales process used. salesforce include all of the following except. But straight commission method is based on the sales effected by the salesmen and not on the time spent on the job. Get help with QuickBooks. It is easy to calculate. Whos using straight hourly compensation? Applicable laws may vary by state or locality. , holiday pay, and parental leave) to lifestyle benefits (like flexible working hours. For example, since the pay of salaried salespeople is not directly related to performance, some of them may not make all of their calls or give the firm "a full day's work for a day's pay." Your paycheck is based on a specific percentage of the sales that you are able to generate. more points. provide salespeople with trips and other rewards. Chris Joseph writes for websites and online publications, covering business and technology. How to start a business: A practical 22-step guide to success, How to write a business plan in 10 steps + free template, What is cash flow? Salary plus Commission This is one of the most reliable types of compensation plans. The high level of uncertainty associated with performance-based pay often leads to extreme competition among the salespersons; leading to lack of cooperation that can harm the companys goals at times. Celebrating the stories and successes of real small business owners. 5. Startup companies using profit margin/revenue based compensation plan can also incorporate long-term incentives such as stock to build loyalty and a valuable sales base. The ideal compensation plan motivates salespeople to achieve their own and the company's objectives. Information Technology Project Management: Providing Measurable Organizational Value, Service Management: Operations, Strategy, and Information Technology, John David Jackson, Patricia Meglich, Robert Mathis, Sean Valentine, Chapter 10 - Motivating and Satisfying Employ. follow-up and service. 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The importance of the salesperson's personal skills in making sales is considerable. According to compensation surveys, ales managers typically earn less than the top reps in their district when sales reps are on an incentive-based plan. Increment is given annually as per the scale of pay, and after a certain number of years of service, salesman is promoted to a higher scale of pay. With this type of structure, you'd pay your sales people a straightalbeit competitivesalary like all of your other employees, and nothing else. However, if the employees commissions, plus their hourly rate, are together less than the minimum wage, the employer is required to make up the difference. \text{ } & \text{ } & \text{52-Week} & \text{52-Week} & \text{ } & \text{ } & \text{Sales} & \text{ } & \text{ }\\ The tools and resources you need to manage your mid-sized business. Dana Sparks has been a professional writer since 1990. And while some competition in the workplace is good, this kind of motivation to not only succeed but to survive can sometimes breed distrust and a lack of camaraderie. Contractors are required to find health insurance and retirement plans on their own. Compensation rewards might include all of the following except. The tools and resources you need to run your business successfully. John David Jackson, Patricia Meglich, Robert Mathis, Sean Valentine, Operations Management: Sustainability and Supply Chain Management, Service Management: Operations, Strategy, and Information Technology, Information Technology Project Management: Providing Measurable Organizational Value, Opportunity / Chance / Possibility / Occasion. What change in the firm's salesforce reward system might be in response to customer's needs? For each frequency distribution, suggest "nice" bins. Advantages of straight salary. \underline{\underline{2,300}} && \underline{\underline{101,000}} && \underline{\underline{-2,000}} && \underline{\underline{35,000}} && \underline{\underline{-29,000}}\\ \\ \\ \\ \hline \hline as well as U.S. securities. The workplace catchphrase you need to know. international stocks and bonds Advantages. In designing plans one must balance the goals of the firm, as well as the needs of the sales force and customers. Such a plan is quite common in the services industry as well as in the industrial goods sector. But straight commission method does not assure any minimum income to the salesmen. The commission can include (but is not limited to) a percentage of personal sales, a percentage of team sales, bonuses, or overtime pay. Which of the following statements regarding changes in the reward system is false? Can I Get Fired For Leaving A WhatsApp Group? These can range from monetary benefits (like extrapaid time off, holiday pay, and parental leave) to lifestyle benefits (like flexible working hours,the ability to work from home, a pet-friendly working environment, etc.). 1. After initial investigations by Holmes Miller, head of the Operations Department, BIA has narrowed the list to 9 cities. For example, if you work 42.5 hours in a week, you earn 40 hours of pay at your hourly base rate and 2.5 hours at 1.5 times your hourly base rate. Straight salary compensation is typically used in industries where: Missionary selling (i.e. costing little and reinforcing desirable behavior immediately after it occurs. manner. 2. Advantage: Straight-Forward Budgeting For you as a business owner, paying fixed salaries allows you to precisely know how much you're going to pay out each month in labor costs and to budget accordingly. Straight salary offerings can also be good for attracting new talent thats concerned with stability. Hourly plus commission compensation does have its disadvantages as well. &&\textbf{\textsf{Assets}}\\ The primary benefit of salary-plus-commission plans is they allow the compensation program to be tailored to the needs of a particular firm. Is good for a financially weak company. . 9. There may be multiple rates of bonuses and commission, and payroll managers must have a system in place to keep track of everything. Selling situations that require salespeople to perform special services for customers are more likely to be performed when salespeople are on salary. This form of nonfinancial reward is generally considered to be more desirable to younger salespeople 30,000 && 4,000 && 75,000\\ PMR is common in sales and is good for startups with low liquidity. Bal.1.2.3.4.5.6.7.Bal.AssetsCash+Supplies+Land30,0004,00075,000+35,00026,00015,000+15,000+1,5002,0007,2003,00014,8002,50090,000==Liabilities+OwnersEquityAccountsMurrayKiser,MurrayKiser,FeesPayable+CapitalDrawing+EarnedExpenses8,000101,00035,00026,000+1,5002,0007,2003,0002,300101,0002,00035,00029,000\begin{array}{lccl} It has lower turnover rates. a large company purchases products from a company and ships them to its affiliates in several cities, with the selling firm's salespeople in these cities required to provide virtually automatic, this form of commission rate would be appropriate: An example of a selling situation requiring a commission split would be. Such a plan is quite common in the services industry as well as in the industrial goods sector. Intuit accepts no responsibility for the accuracy, legality, or content on these sites. Relevant resources to help start, run, and grow your business. Salespeople may also be paid on a straight salary basis in which there is no opportunity to earn incentives. Provide an opinion of which type of compensation plan you would prefer as a professional salesperson. \text{T} & \text{AT&T} & \text{37.50} & \text{30.97} & \text{37.12} & \text{-0.01} & \text{22,009,008} & \text{37.50} & \text{37.06}\\ \hline Employers may use this type of compensation to keep payroll expenses low while still motivating employees to perform. However, a straight salary plan also has its own advantages. 3. It is often used in direct sales industries and multi-level marketing (MLM) firms that work with independent contractors. Building an effective sales force compensation plan boils down to: When establishing goals for the compensation plan, a sales manager must consider: Competitive compensation packages in the marketplace. A straight salary plan can be advantageous in certain situations. The firm is looking for a Vice President for sales and promotion. \textbf{\textsf{Cash}} & \bm{+} & \textbf{\textsf{Supplies}} & \bm{+} & \textbf{\textsf{Land}}\\ Resources to help you fund your small business. \text{Florida State} & \text{75} & \text{Wake Forest} & \text{70} & \text{5}\\ These can range from monetary benefits (like extra. The least valued nonfinancial reward by salespeople, other than those nearing retirement, is, According to the text, controls typically used by companies to ensure judicious spending by the Straight salary compensation plans are ideal in industries where the normal structure does not involve (and might even prohibit) direct sales. A common salary-to-commission ratio is 60:40 (60 percent fixed / 40 percent variable). The most serious disadvantage of a straight-salary compensation plan is. \hline , a pet-friendly working environment, etc.). Murray Kiser operates his own catering service. All of the following are typical reimbursable expense items except. A straight salary can work well for sales positions for which a high focus on service is required, such as a salesperson who calls on retail stores on a regular basis to take orders and stock merchandise. Some terms may not be used. 2. Which of the following statements about a straight salary compensation plan is true: A major limitation of straight salary compensation plans is that financial rewards are not directly tied to any specific aspect of job performance. A good salary plus commission plan will motivate employees to higher sales and performance while giving them the peace of mind of regular, stable income. Employees who prefer to set their own schedules or be their own boss often thrive in commission-only environments. In these situations, it can be difficult to determine who contributed most to attaining the sale, making a commission plan difficult to administer. Are benefits included in the definition? So what is compensation? Salesmen Reward: Under the straight salary method, salesmens rewards are not matched with their efforts. Straight salary method promotes team-spirit and cooperation among the salesmen in the case of joint sales. To implement a new or modified reward system, sales managers should do all of the following except. finds the job to be inherently rewarding. Benefits or Advantages A regular income gives the salesman a good degree of security. Travel and entertainment costs are a relatively insignificant portion of a salesperson's compensation package. Part A: Compare the advantages and disadvantages of straight salary and straight commission compensation plans. Laws differ by state, so do your research before making any decisions. Each time a commission check is cut you have the satisfaction of knowing that it's due to something positive. Theres something for every HR professional, whether youR Today, creating a sense of purpose is more critical than ever, and we provide employees the means to be successful and feel valued through empowerment, development, feedb HR Drift their compensation plans to recognize team performance? Currently editor at The HR Digest Magazine. Since there are no (monetary) incentives to work harder, a non-competitive environment may tempt employees to become complacent, limiting the companys growth. When it comes to employee compensation, there isnt a one-size-fits-all solution. that they offer little financial incentive to perform past a merely acceptable level. Employees who like to work on teams and dont want their compensation to be judged on individual performance may be attracted to this kind of plan as well. Straight salary plans are not popular with salespeople because: They don't provide strong incentives for extra effort. An incentive pay cannot work in such a case. __ A mutual fund that purchases With some compensation plans, they can earn additional incentive pay in the form of commissions or bonuses that a company offers in an attempt to motivate them.