Which, if any, of the following sources available will help you in your task? In commission only jobs, companies offer a safety net in the form of draw against commission. The company pays its salespeople a set amount known as a pre-determined draw at the beginning of each pay period. For example, an employee who is going to make the same amount of money whether he sells one refrigerator or 100 is more likely to become complacent. Straight salary refers to the basic salaries and wage given to the worker. Part A: Compare the advantages and disadvantages of straight salary and straight commission compensation plans. Celebrating the stories and successes of real small business owners. \text{Bal. What was the difference between the day's high and low for one share of Southern Copper? Your earning potential is unlimited. The Pros and Cons of Different Sales Compensation Plans Quizzes test your expertise in business and Skill tests evaluate your management traits. Basis: Straight salary method is based on the time spent on the job, and not on the volume of sales effected by the salesmen. Straight salary compensation is typically used in industries where: Missionary selling (i.e. In this sense, compensation is a counterbalance. \hline The straight salary plan proves advantageous to both the salesperson and the management. This leaves the salespersons with no opportunity for extra money or incentives. 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. But straight commission method provides sufficient incentive to the salesmen to do hard work. Readers should verify statements before relying on them. Which of the following statements regarding changes in the reward system is false? 4. Overall compensation and rewards increase with the use of team selling. 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? \text{Arizona} & \text{90} & \text{Oregon} & \text{66} & \text{24}\\ Example: Each rep in your company earns a straight salary of $75,000 a year, or $1,440 a week (gross). Relevant resources to help start, run, and grow your business. The directors, who strongly wish to retain family control of the company, must consider issuing securities to outsiders. Currently editor at The HR Digest Magazine. Terms and conditions, features, support, pricing, and service options subject to change without notice. a. The remaining 25% of the sick leave payout As a result, salaried workers often dont track hours worked. Is it just monetary? This requires very clearly defined territory outlines and territories that produce enough income to support competitive wages. \textbf{\textsf{Accounts}} && \textbf{\textsf{Murray Kiser,}} && \textbf{\textsf{Murray Kiser,}} && \textbf{\textsf{Fees}} \hspace{6pt}\\ Further, the straight commission motivates poor performers to become more productive since it rewards good performers (Johnston and Marshall, p. 329). Everything you need to start accepting payments for your business. Companies often feel they can justify a lower salary or rate if they include a more robust benefits package. How much investment capital should you accept? This is a very broad category of compensation. . pharmaceutical sales) is the most common type of sales process used. 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. +35,000\\ 2. 9. \hline\\ Sadly, employers are usually reluctant to offer a residual commission deal to employees. Last week's MPG for 35 student vehicles (xmin=9.4,xmax=38.7)\left(x_{\min }=9.4, x_{\max }=38.7\right)(xmin=9.4,xmax=38.7). \\ Straight salary method of remuneration Meaning, Suitability, Advantages, Disadvantages. Companies looking for long-term growth as opposed to short-term sales may opt for this type of compensation as well. Get the definitive guide to employee compensation packages and benefits in this comprehensive QuickBooks resource written by payroll expert Katey Maddux. 1. From big jobs to small tasks, we've got your business covered. 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. 5. So, it does not encourage salesmen to do hard work. Tax basics you need to stay compliant and run your business. This can lead to high turnover, a need for more recruitment resources, and higher training costsall of which cuts into potential bottom-line savings. \\ Part B: As a retail sales manager of a large superstore, one of your responsibilities is to train the newly hired employees. Per the IRS definition, the contractor is in control of how the work gets done, so there is a lot of freedom. Your email address will not be published. Are you ready for a pay raise? Sparks holds a Bachelor of Arts in business. Are benefits included in the definition? You were given the mandate by your boss to change the compensation plan so that the total salesperson compensation (salary plus commission) is lowered. Does not provide security, so the reps will work harder. A major objective of a well-designed compensation package is to: 1. 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. Employees earning salary plus commission will have higher income tax rates than a self-employed agent. 6. -15,000 &&&& +15,000\\ 30,000 && 4,000 && 75,000\\ Formal recognition programs have a better chance of success if sales managers do all of the following Is good for a financially weak company. finds the job to be inherently rewarding. As the remuneration of the salesmen under this method does not depend upon the volume of sales made by them, the salesmen will not be reckless in increasing their sales by selling to every customer on credit. Cost of Administration: The cost of administration of straight salary plan is less than that of straight commission plan. Additionally, they have full control over benefits like insurance and retirement management. Once the person has established himself in the area, the company can switch to performance-based salary. It is not clear that offering unlimited opportunities to earn higher pay will always be an effective method for continued salesperson motivation. 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. An employee who works only on salary has little external motivation to go above and beyond. the working capital requirements are lessened with the straight-salary compensation plan. Leadership Insights The sales teams support each other to reach a common goal. The major disadvantage is that the salespersons may not feel motivated and would only complete the minimum requirements. Expert Answer. bell-shaped distribution. If you have less experience or education than other job applicants, taking a salaried . provide salespeople with trips and other rewards. Copyright 2023 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. If a salesperson earns more commissions than he was paid, he keeps the extra money. This type of compensation plan puts less pressure on individuals and fosters team-building. \begin{array}{l} \hline In many companies, basics plus bonus-based compensation plans are used as a way to motivate employees. This type of compensation plan is every salespersons dream. Contractors are required to find health insurance and retirement plans on their own. 7. In case the salesperson shows high sales performance, the firm increases its salary. The Science Behind Salary Negotiations: A Game Plan for Employers That Sales Management Ch 12 Flashcards | Quizlet Browse the definition and meaning of more similar terms. A regular and stable income can do much to develop a loyal and well-satisfied salesman. On the other hand, TVC can lead to hostility between employees if they dont feel the workload or efforts of all representatives are balanced. \begin{array} {rcrcrcrcr} \end{array} On the other hand, under the straight commission method, salesmens rewards are matched with their efforts. Chris Joseph writes for websites and online publications, covering business and technology. A per diem expense plan pays the salesperson for all reported expenses. Plan B is to issue 100,000 shares of common stock. 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 Any re-adjustments in sales territories or management policies can be easily carried out under this system without much resistance from the salesmen, as the salesmen will be paid the same remuneration, irrespective of sales territories. Disadvantages of straight hourly compensation, Whos using hourly plus commission compensation, Benefits of hourly plus commission compensation, Disadvantages of hourly plus commission compensation, Disadvantages of commission-only compensation, Whos using territory volume compensation, Benefits of territory volume compensation, Disadvantages of territory volume compensation, 7. The net result of setting limits on sales expenses is that salespeople spend their valuable time juggling expenses from one category to another or from one time period to another to make sure they cover their costs. 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. Under Straight salary method, a salesman is paid remuneration on time basis. Your boss thinks you should implement a salary plus commission plan with an incentive ceiling. If its part of their contract, salespeople can continue to receive commissions even after theyve left the company. \text{JPM} & \text{JP Morgan Chase & Co.} & \text{70.61} & \text{57.07} & \text{57.45} & \text{$+1.11$} & \text{20,987,678} & \text{58.11} & \text{57.14}\\ \hline a. salaries are a fixed cost to the firm and thus tend to decrease proportionally as sales increase. 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. https://quickbooks.intuit.com/r/payroll/employee-compensation-benefits-guide/. An employee who agrees to this type of compensation will receive a base salary along with an additional bonus if performance hits or exceeds earning goals. One advantage of hourly pay is your eligibility for overtime. 11 Main Types of Sales Compensation Plans (With Examples) Nevertheless, salary compensation plans are appropriate in a number of situations. Copyright 2023 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. It assures a steady minimum income to the salesmen. 6. Profit margin/revenue-based compensation, Whos using profit margin/revenue-based compensation, Benefits of profit margin/revenue-based compensation, Disadvantages of profit margin/revenue-based compensation, Whos using residual commission compensation, Benefits of residual commission compensation, Disadvantages of residual commission compensation, Pros and cons of salaried versus hourly compensation, Pros of hourly compensation for employees, The freedom to change work schedules in accordance with other schedules, The opportunity to work more hours to make more money, Its often easier to get a new job if the current one isnt a good fit, Cons of hourly compensation for employees, Pros of hourly compensation for employers, Employers can increase or decrease hours based on heavy or slow seasons, Depending on how many employees are on the payroll, employers may not be required to provide benefits, including health insurance or, Cons of hourly compensation for employers, Payroll can be more complex and difficult to calculate if using multiple rates, Increased training and hiring expenses (as a result of high turnover), Pros of salary compensation for employees, Consistent hours and income create more security, Cons of salary compensation for employees, If working for a straight salary, better performance doesnt constitute higher pay, Switching between jobs can be more difficult, as theres often a more intense hiring process, Pros of salary compensation for employers, Salaried employees can be more loyal than hourly employees, Often a higher level of talent or education, Cons of salary compensation for employers, Payroll expenses are fixed, even if profitability decreases, It can be more expensive to attract top talent, Why employee classification is so important. salesperson's total pay that is salary should be relatively high? Starting salaries often begin far enough above hourly rates to be able to afford a down payment on a house or car. -26,000\\ One regulation is employers are required topay overtimeat a rate of time and a half if an employee works over 40 hours in one week (this is a U.S. standard and differs by country). . Hourly plus commission compensation does have its disadvantages as well. Among the drawback(s) you will discuss include: You have read a "want ad" in the latest edition of Marketing News. "USA Today": Finding What Motivates Your Employees. Different companies offer different compensation plans to their sales representatives- the straight salary plan being one of the simplest. 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. Ultimately, you have to determine the method of pay that your company can best manage and to weigh the advantages and disadvantages of offering a fixed salary. Finding what compensation plan works best for the company, involves accessing its strengths and weaknesses, making a decision based on the long-term goals, and carefully negotiating the contract with the employee in a way that it works best for the company and its needs. Selling situations that require salespeople to perform special services for customers are more likely to be performed when salespeople are on salary. System is easy to understand and compute. 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. Compare the advantages and disadvantages of straight salary and the working capital requirements are lessened with the straight-salary compensation plan. 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. Defined by the FLSA, tipped employees are those who receive more than $30 per month in tips. That means, there will not be much bad debts. 10. This is one of the most reliable types of compensation plans. You can tweak the budget annually by deciding whether the business has flourished enough to offer merit raises. But straight commission method distinguishes between efficient and inefficient salesmen. Sales contests will continue to be an important tool for achieving expedient results. \end{array} \begin{array} {rcrcr} The advantages of straight salary compensation include which of the following? In some organizations, selling is a collaborative effort. An advantage of the straight salary plan for compensating salespeople is that it: Provides a direct relationship between sales and expenses. 40 Questions to Ask Before You Accept A Job Offer. Straight salary method of remuneration is simple. The latest product innovations and business insights from QuickBooks. Which of the following conditions would indicate to the sales manager that the proportion of the Straight salary offerings can also be good for attracting new talent that's concerned with stability. &&&& -2,000\\ Tax and bookkeeping basics you need to run and grow your business. \end{array} The compensation is usually calculated by finding out territory volume. Intuit, QuickBooks, QB, TurboTax, Mint, Credit Karma, and Mailchimp are registered trademarks of Intuit Inc. Some disadvantages of straight salary compensation may include reduced retention and high turnover if employees dont see opportunities to increase their pay. Based on this information, which salesperson compensation plan would work best? Benefit packages amount to a negligible portion of the cost of keeping a salesperson in the field. \text{Kansas} & \text{78} & \text{Colorado} & \text{57} & \text{21}\\ \end{array} However, successful salespeople tend to make a lot of money with commission than with a salary plus commission job. Once the person has established himself in the area, the company can switch to performance-based salary. 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. Salaried individuals who earn less than $23,660 per year often qualify for additional compensation, including overtime pay, per the FLSAs standard for non-exempt salaried employees. manner. Intuit does not endorse or approve these products and services, or the opinions of these corporations or organizations or individuals. The major drawback to salary plus commission plans is that they are more expensive and more costly to administer. Whos using straight salary plus commission compensation? One regulation is employers are required to, at a rate of time and a half if an employee works over 40 hours in one week (this is a U.S. standard and differs by country). \begin{array} {c} The Management Dictionary covers over 2000 business concepts from 5 categories. For employers who dont want to pay employees after they leave, this type of compensation can incentivize employees to stay at the company. 11. How much do employees cost beyond their standard wages? Can I Get Fired For Leaving A WhatsApp Group? Profit margin is one of the most popular types of compensation used by start-up companies. The earnings of a person who is working as an independent contractor are subject to self-employment tax.. Which one of the following statements regarding global compensation is false? Such positions might include retail sales, restaurant employees, barbers and cosmetologists, and customer service reps. Which of the following is not mentioned in the text as a challenge to sales managers attempting to adjust 100% (2 ratings) FALSE because straight salary can make all sales reps equivalent individuals, which is best when th . The goal of the compensation package is to reward employees for their efforts without putting the firm's profitability in jeopardy. 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. Sales Commission & Compensation Plans: The Key to a Star - Pipedrive Incentives to Salesmen: Straight salary method does not provide any incentive to the salesmen to do hard work. \textbf{\textsf{Liabilities}} & \bm{+} &&&\textbf{\textsf{Owner's Equity}}\\ Jobs report: Are small business wages keeping up with inflation?