Under this system, rewards are not matched with efforts. Which, if any, of the following sources available will help you in your task? If theyve just started a family, they may be looking for benefits like parental leave and the chance to work from home. It is critical that companies using this type of system have good metrics in place for tracking sales so they can fairly and accurately calculate commissions. . Lavish formal recognition programs can provide all of the following benefits to a salesforce except. You were given the mandate by your boss to change the compensation plan so that the total salesperson compensation (salary plus commission) is lowered. Additionally, they have full control over benefits like insurance and retirement management. It does not provide any incentive for hard work. \end{array} Everything you need to start accepting payments for your business. \text{Purdue} & \text{76} & \text{Michigan State} & \text{70} & \text{6}\\ 8. While in certain compensation plans, the salespersons receive benefits on accomplishment for specific tasks (e.g. Each time a commission check is cut you have the satisfaction of knowing that it's due to something positive. \\ Differences between Straight Salary and Straight Commission Method Your email address will not be published. , LLC in Miami, Florida. Employees who receive it are considered nonexempt by the FLSA, meaning their compensation is regulated. When the salesmen are required to perform some other functions in addition to selling. You think you have finally selected a compensation method and wage level that meets your boss's requirements. Employees like it because it rewards those who work hard. Benefits of salary plus commission compensation, Disadvantages of salary plus commission compensation, This type of compensation refers to a set hourly amount without additional performance-based income. In some organizations, selling is a collaborative effort. You now require the sales force to sell $35,000 worth of product each month to make a commission. \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{-3,000}\\ As defined by the IRS, independent contractors are people who are in an independent trade, business, or profession in which they offer their services to the general public. Employees and independent contractors are mutually exclusive, as a person is either one or the other. Copyright 2023 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. 6. O True O False. Salespeople may also be paid on a straight salary basis in which there is no opportunity to earn incentives. Commission for independent sales reps can range from 5% to 40%, with the average ranging from 20% to 30% of gross margins or 7% to 15% of gross sales. Which of the following statements regarding changes in the reward system is false? The Pros and Cons of Different Sales Compensation Plans 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. 2. Increase sales and revenues. The most commonly used definitions of motivation include these three dimensions: Use the table below. In this type of compensation, income is solely based on sales made. The companys income tax rate is 35%. Using the mean and standard deviation found in part (a), Weve picked the most common and most rewarding forms of compensation plans and highlighted their benefits and downsides, so you can decide which one works best for your business needs. \begin{array} {rcrcrcrcr} Straight salary plan can help promote a sense of equality among sales people who work as teams or small groups, for everyone is paid equally and the contribution of each team member is also expected to be equal. Provide an opinion of which type of compensation plan you would prefer as a professional salesperson. Which of the following is/are most likely to be among them? Straight Salary Method of Remuneration | Meaning | Suitability | Merits | Demerits, Salesmanship | Meaning | Features | Objectives, Arguments in favor of Social Responsibility of Business, Business Enterprise Meaning | Public | Private | Joint, 10 Most Important functions of a Group Leader, Factors to be Considered in Planning Factory Building, Reasons for Governments Intervention in Private Business, Factors Influencing Salesmen Remuneration Plan, Organizational Factors Responsible for Resistance to Change, Avoidable and Unavoidable causes of Labour Turnover, 5 Important Classification of Business Environment, Under what circumstances a Pvt company be, Purchase Department | Purchase Officer | Qualification, 7 Arguments against Social Responsibilities of Business, Accountlearning | Contents for Management Studies |. Circumstances: Straight salary method can be used under any circumstances, whereas straight commission method can be used only in cases where the sales made by the salesmen can be measured. These have a significantly higher (pre-tax) contribution limit than company IRAs. 6 Different Types of Compensation Plans and Benefits - The HR Digest She loves training, creating processes, and introducing her clientele to new apps and technology. \text{Kentucky} & \text{71} & \text{Notre Dame} & \text{63} & \text{8}\\ 1. Which of the following is not true regarding the design of a global salesforce compensation system? 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. Whos using straight hourly compensation? Because there is no incentive to push products, the salesperson can be more concerned with meeting the needs of the customer and building a long-term relationship, which is important in a situation in which repeat visits are part of the job. b. Ages of 50 airplane passengers (xmin=12,xmax=85)\left(x_{\min }=12, x_{\max }=85\right)(xmin=12,xmax=85). The most serious disadvantage of a straight-salary compensation plan is. Those who sell below $35,000 will not receive commissions. Disadvantages of straight salary compensation Some disadvantages of straight salary compensation may include reduced retention and high turnover if employees don't see opportunities to increase their pay. Intuit Inc. does not warrant that the material contained herein will continue to be accurate nor that it is completely free of errors when published. Sparks holds a Bachelor of Arts in business. 9. A commission plus bonus plan is particularly suited to a company that uses brokers or independent sales reps. Companies wanting to exert some longer term behavioral control using incentives should make sure that the incentive component is between 15 and 30 percent of total compensation. 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. Bal.1.2.3.4.5.6.7.Bal.Cash30,000+35,00026,00015,0002,0007,20014,800+AssetsSupplies4,000+1,5003,0002,500+Land75,000+15,00090,000==LiabilitiesAccountsPayable8,000+1,5007,2002,300++MurrayKiser,Capital101,000101,000OwnersEquityMurrayKiser,Drawing2,0002,000+FeesEarned35,00035,000Expenses26,0003,00029,000. The sales numbers are added up and all commissions are split equally among all sales professionals. In designing plans one must balance the goals of the firm, as well as the needs of the sales force and customers. Benefits or Advantages A regular income gives the salesman a good degree of security. more points. View the full answer. The importance of matching the abilities and needs of sales recruits to the ____ cannot be overstated. 5. Straight Salary Method of Remuneration | Meaning | Suitability | Merits Employees who prefer to set their own schedules or be their own boss often thrive in commission-only environments. This offers the security of a salary with the greater earning potential of commission. The importance of the salesperson's personal skills in making sales is slight. Once the person has established himself in the area, the company can switch to performance-based salary. This is a very broad category of compensation. \bm{=}\\ \bm{=} \\ \\ \\ \\ \\ \\ \\ \\ \\ \\ \\ \\ Depending on a companys compensation strategy, there are both pros and cons for hourly versus salaried employees. 9. Further, the straight commission motivates poor performers to become more productive since it rewards good performers (Johnston and Marshall, p. 329). Another disadvantage is the lack of benefits. \text{Winning Team} & \text{Points} & \text{Losing Team} & \text{Points} & \text{Winning Margin}\\ This form of commission rate may actually result in overselling and higher selling costs to the company: When it is difficult for the salesperson to secure the first order from the customer, but reorders are Cost of Administration: The cost of administration of straight salary plan is less than that of straight commission plan. That means, there will not be much bad debts. determine the relative amounts to be paid in salary, commission, and bonus. 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. Straight salary offerings can also be good for attracting new talent that's concerned with stability. Plan B is to issue 100,000 shares of common stock. For employers, hourly employees can be a good option for work that fluctuates seasonally. It tends to only attract less experienced staff who want a "safe" pay structure. He holds a Bachelor of Science in marketing from York College of Pennsylvania. Management can direct Salesforceinto various activities more easily. If you choose this plan, you'll pay your reps using a mix of base salary and performance-based rewards. Because employee base pay is often low (employers can pay as low as $2.13 hour, which means the entire paycheck can go to taxes or withholding), making a livable income can be tough without significant sales. \text{Bal. Being Paid on Salary: Pros and Cons | Indeed.com A common salary-to-commission ratio is 60:40 (60 percent fixed / 40 percent variable). The importance of the salesperson's personal skills in making sales is considerable. This type of compensation is often used for entry-level jobs or employees working in restaurants, retail, or the service industry, usually in non-management roles. Some disadvantages of straight salary compensation may include reduced retention and high turnover if employees dont see opportunities to increase their pay. as well as U.S. securities. When the salesmen are required to create markets for a product. The location selection is critical, and with the potential for 4,000 new skilled blue-collar jobs on the line, virtually every city in western Europe is actively bidding for BIA's business. Focus on Service 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. Transcribed image text: QUESTION 17 An advantage of using a straight salary plan to compensate sales employees is that employees can be paid for performing only sales effort. bonuses for sales target achievement), in others salespersons receive commissions as a percentage of the sales they were involved in. It assures a steady minimum income to the salesmen. 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? It is a very useful system of remunerating newly-appointed salesmen who are new to the job. Sales Costs: Under the straight salary method, sales costs are not matched with the sales. Part A: Compare the advantages and disadvantages of straight salary and straight commission compensation plans. Are benefits included in the definition? Starting salaries often begin far enough above hourly rates to be able to afford a down payment on a house or car. They don't want to worry about the inconsistencies associated with a commission-based pay. \\ Your base pay provides a steady income during seasons where commission may be more difficult to earn. In many companies, basics plus bonus-based compensation plans are used as a way to motivate employees. Different companies offer different compensation plans to their sales representatives- the straight salary plan being one of the simplest. 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. If an employee makes no sales during a month, he doesnt get paid. Companies looking for long-term growth as opposed to short-term sales may opt for this type of compensation as well. Match the terms with the definitions. 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. It is usually easy to design pay plans that fully meet the goals and needs of the firm, customers, and salespeople. This type of compensation plan is every salespersons dream. As salesmens remuneration is not related to the volume of sales made by them, this method imposes a serious burden on the earnings of the firm in terms of sales. i) Beneficial for industries which prohibits direct sales. The compensation plan in which virtually every type of sales activity is rewarded, is called a: Your boss thinks you should implement a salary plus commission plan with an incentive ceiling. The Advantages & Disadvantages of Salary - Career Trend Sales Management Insight: Sales Commission Plans. Let's explain the benefits with a clear example of an unpackaged salary versus an FBT exempt salary package. Advantages of straight-salary compensation plans include all of the following except. except. Before making any decisions, consider what type of compensation you can offer potential employees and what the stipulations of that compensation plan are. Is good for a financially weak company. At the end of the pay period, this prepayment is drawn from how much the salesperson earned in commissions. It is easy to calculate. This is one of the most reliable types of compensation plans. Similar to straight salary, this compensation structure offers employees a guaranteed base income annually, but also offers performance-based income in addition, unlike straight salary. By accessing and using this page you agree to the Terms and Conditions. 5 Park N Fly presently has net income of $3.5 million and 1 million shares of common stock outstanding. 5. So, it does not encourage salesmen to do hard work. a supportive sales management leadership style. MKGT 637 Chapter 8 Flashcards | Quizlet Check to see how the salespeople would fare under the new plan by using sales figures from the previous year and calculating expecting compensation. A salesperson who is intrinsically motivated. Jobs report: Are small business wages keeping up with inflation? Incentives are often seen as effective triggers when the objective is to improve the top line i.e. Leadership Insights Some terms may not be used. Formal recognition programs have a better chance of success if sales managers do all of the following However, the$5 million that the business needs for growth cannot be raised within the family. -26,000\\ Save my name, email, and website in this browser for the next time I comment. \end{matrix} Relevant resources to help start, run, and grow your business. According to your text, which benefit is offered by the greatest percentage of companies? \underline{\underline{14,800}} && \underline{\underline{\ \ \ 2,500}} && \underline{\underline{90,000}} \\ \\ \\ \\ 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. Advantages to Salesperson: The salesperson feels free from financial uncertainties because of stable income inflow. Example: Each rep in your company earns a straight salary of $75,000 a year, or $1,440 a week (gross). Usually, the type of compensation plan an organization chooses, and the type that an individual accepts, depends on the market conditions and the goals of those involved. &&\textbf{\textsf{Assets}}\\ 30,000 && 4,000 && 75,000\\ But straight commission method provides sufficient incentive to the salesmen to do hard work. It provides stability of earnings without wide fluctuations. If so, an hourly rate with a flexible schedule could be more attractive. Take a reactive approach to seeking out motivational problems and sources of frustration in the salesforce. Since there are no (monetary) incentives to work harder, a non-competitive environment may tempt employees to become complacent, limiting the companys growth. It could reduce retention and increase turnover. Katey Maddux is a paddle boarder, music lover, Zumba instructor, and Founder and CEO ofMillennial Accounting, LLC in Miami, Florida. 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. According to your text, what would you do next? There is no additional performance or sales-based income added to the employees compensation. When the sales effected by the individual salesman cannot be isolated (i.e., when the sales are made collectively by two or more salesmen). A straight salary can greatly benefit someone who is transferring to a new territory. 3. A salesperson who is extrinsically motivated, is motivated by the rewards that the job provides, Reward system management involves the selection and utilization of organizational rewards to. Sales Management Ch 12 Flashcards | Quizlet How much do employees cost beyond their standard wages? For example, consider a salesman who frequents various retail stores or department stores to check inventory or take orders for replenishment. You have a meeting with her to outline the drawback(s) of this type of plan . The salary-plus-commission pay structure also encourages employees to set more aggressive sales goals. A straight salary plan can be advantageous in certain situations. One of the advantages of the gross margin commission plan is the firm and salesperson share the same pool of money so both are interested in maximizing that amount. On the other hard, straight commission method does not give the management sufficient control over the salesmen. Katey Maddux is a paddle boarder, music lover, Zumba instructor, and Founder and CEO of. is considered a serious offense, which, if detected, often leads to termination of employment. With this type of structure, you'd pay your sales people a straightalbeit competitivesalary like all of your other employees, and nothing else. Assume that the points scored by the winning teams for all NCAA games follow a In order to "weather the storm," the best course of action among those presented below is to: Raise commission rates on higher margin products in all regions in order to boost sales. In most companies, the base pay is determined by the workers job title and job role. 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. The sales teams support each other to reach a common goal. follow-up and service. From a payroll standpoint, this type of compensation is harder to administer. the working capital requirements are lessened with the straight-salary compensation plan. Changing from a straight salary plan to a combination salary plus commission plan provides a number of benefits. The ATO considers this $80,000 taxable income. But straight commission method distinguishes between efficient and inefficient salesmen. This type of compensation refers to a set hourly amount without additional performance-based income. Companies are increasing incentives for foreign-based employment. , a pet-friendly working environment, etc.). Tax and bookkeeping basics you need to run and grow your business. Employers may use this type of compensation to keep payroll expenses low while still motivating employees to perform. Some people won't work for anything other than a fixed salary. Some of these jobs also have flexible schedules, which can be beneficial to employees. && +1,500\\ Explore the trend of creative job titles in the job market and how they are reshaping the way we view and define roles in the workforce. According to the Customer-Product Matrix, sales positions which focus primarily on New Business Development require a greater proportion of __________ in the compensation plan than those sales jobs in the lower left-hand quadrant (Account Management). You can tweak the budget annually by deciding whether the business has flourished enough to offer merit raises. Employers are also required to pay employees theminimum wage, which can vary depending on their states minimum wage. total sales. Fresh business resources are headed your way! Control over Salesmen: Straight salary plan gives the management sufficient control over the salesmen. \text{Stanford} & \text{77} & \text{Southern Cal} & \text{67} & \text{10}\\ Under this plan, companies compensate its employees entirely on the profits made by the business.