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. finds the job to be inherently rewarding. manner. She helps HR professionals identify issues with their talent management and employment law. Perhaps the most serious shortcoming of straight-commission plans is that. 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} A straight salary plan can be advantageous in certain situations. The EU has made changes in airline regulation that dramatically affect major European carriers such as British International Air (BIA), KLM, Air France, Alitalia, and Swiss International Air. Which of the following is not a guideline for optimizing the use of sales contests? And because there is no financial security that kicks in if sales arent made, those who dont earn enough leave or burn out quickly. d. Annual rates of return on 150 mutual funds (xmin=.023,xmax=.097)\left(x_{\min }=.023, x_{\max }=.097\right)(xmin=.023,xmax=.097). elect to receive regular straight time pay or bank compensatory time at their straight time rate. 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. Employees who prefer to set their own schedules or be their own boss often thrive in commission-only environments. When more than one individual works together to make a sale, the selling process is described as: You have just been promoted to the position of sales manager. 3. It is usually easy to design pay plans that fully meet the goals and needs of the firm, customers, and salespeople. \begin{array} {rcrcrcrcr} This type of compensation plan is every salespersons dream. 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. Contractors are required to find health insurance and retirement plans on their own. The salary-plus-commission pay structure also encourages employees to set more aggressive sales goals. https://quickbooks.intuit.com/r/payroll/employee-compensation-benefits-guide/. This compensation type tends to attract fewer people since there is no secure base pay. Straight salary offerings can also be good for attracting new talent that's concerned with stability. The Management Dictionary covers over 2000 business concepts from 5 categories. "USA Today": Finding What Motivates Your Employees. the requirement that expenses be charged and the bills sent directly to the company for payment by the accounting department. channeled in directions consistent with the overall strategic role of the salesforce within the firm. The latest product innovations and business insights from QuickBooks. Based on this information, which salesperson compensation plan would work best? . Help Miller rank the top three cities that BIA should consider as its new site for servicing aircraft. The earnings of a person who is working as an independent contractor are subject to self-employment tax.. Are benefits included in the definition? \text{SCCO} & \text{Southern Copper} & \text{29.53} & \text{19.90} & \text{22.06} & \text{-1.79} & \text{1,823,761} & \text{22.07} & \text{22.07}\\ \hline You think you have finally selected a compensation method and wage level that meets your boss's requirements. Provide an opinion of which type of compensation plan you would prefer as a professional salesperson. Straight salary plans are not popular with salespeople because: They don't provide strong incentives for extra effort. Sales Management Insight: Sales Commission Plans. But straight commission method does not assure any minimum income to the salesmen. Your boss thinks you should implement a salary plus commission plan with an incentive ceiling. Further, the straight commission motivates poor performers to become more productive since it rewards good performers (Johnston and Marshall, p. 329). 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. \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 An incentive pay cannot work in such a case. \text{Wisconsin} & \text{76} & \text{Illinois} & \text{56} & \text{20}\\ Is it just monetary? Get the definitive guide to employee compensation packages and benefits in this comprehensive QuickBooks resource written by payroll expert Katey Maddux. Once the person has established himself in the area, the company can switch to performance-based salary. 5. 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. 7. international stocks and bonds Your national sales force is divided into eight regions, though the Mid-Atlantic region is currently understaffed (sales volume there has always been low). However, the$5 million that the business needs for growth cannot be raised within the family. __ A mutual fund that purchases Quizzes test your expertise in business and Skill tests evaluate your management traits. -7,200\\ \textbf{\textsf{Liabilities}} & \bm{+} &&&\textbf{\textsf{Owner's Equity}}\\ In most companies, the base pay is determined by the workers job title and job role. \textbf{\textsf{Cash}} & \bm{+} & \textbf{\textsf{Supplies}} & \bm{+} & \textbf{\textsf{Land}}\\ 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. 1. Selling situations that require salespeople to perform special services for customers are more likely to be performed when salespeople are on salary. In most companies, the bonus is usually tied to a budgetor other target that has little significance to the employee. Certain selling opportunities require collaborative efforts and an incentive-based system may not be suitable because it might be difficult to determine different individuals level of contribution. If theyve just started a family, they may be looking for benefits like parental leave and the chance to work from home. 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. Straight salary refers to the basic salaries and wage given to the worker. Compensation plans, once set, do not need to be evaluated to determine if it will negatively affect salespeople's wages and total costs. A straight salary can greatly benefit someone who is transferring to a new territory. In this situation, employers have to pay overtime, despite the employee being salaried. Assume that the points scored by the winning teams for all NCAA games follow a Basis: Straight salary method is based on the time spent on the job, and not on the volume of sales effected by the salesmen. Sales jobs consisting primarily of Account Management involve a greater account servicing component and are therefore better suited to a primarily __________. 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. $$ The tools and resources you need to run your business successfully. This means you can always keep earning more money if you're willing to put in some extra hours of work. Grant cites a Stanford and Kellogg study that found when a group of people only shared their email and names during negotiations, they struck up agreements 40 percent of the time. 2. Employees who also have seasonal or fluctuating availability, like students or people with children, also benefit from the flexibility that comes from hourly compensated positions. If its part of their contract, salespeople can continue to receive commissions even after theyve left the company. Security and collaboration: The straight salary plan provides a more stress-free working environment for the salespersons. 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. \text{Arizona} & \text{90} & \text{Oregon} & \text{66} & \text{24}\\ How much do employees cost beyond their standard wages? Contractors can determine their own fees, working hours, employees, etc. But straight commission method provides sufficient incentive to the salesmen to do hard work. The straight salary plan proves advantageous to both the salesperson and the management. Under this system, rewards are not matched with efforts. Its common for remote employees to revolve their entire life aro HR-related shows on Netflix are a great way to unwind and reflect on all that goes on in the workplace. To ensure proper classification, employers should begin with the assumption that their commissioned employees are nonexempt, and then review the potential exemptions to determine whether they apply. Corporate industries and IT sales, for example, often use this type of compensation when creating bonus plans. 5. The remaining 25% of the sick leave payout Which of the following conditions would indicate to the sales manager that the proportion of the The importance of the salesperson's personal skills in making sales is slight. Which of the following conditions would indicate to the sales manager that the proportion of the Under Straight salary method, a salesman is paid remuneration on time basis. that they offer little financial incentive to perform past a merely acceptable level. The right plan will not only motivate your workforce, but it will also align with your business goals and profitability. However, a straight salary plan also has its own advantages. $$ 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. Although quite popular, salary compensation plans have some disadvantages. Did your choice agree with Sturges' Rule? Fringe Benefits and Salary Plan based upon the employee's rate of pay immediately preceding retirement. Another advantage of this pay structure is that it helps in attracting more talent . The compensation is usually calculated by finding out territory volume. \hline\\ Terms and conditions, features, support, pricing, and service options subject to change without notice. On the other hard, straight commission method does not give the management sufficient control over the salesmen. That means, there will not be much bad debts. Provide a mix of both compensation and noncompensation rewards comparable to other firms. Under a straight commission plan, sales managers usually have less control over their reps. With regard to compensation programs, most firms just use a draw against commission. If an employee is required to work on a holid ay as a regularly scheduled work day, . But straight commission method distinguishes between efficient and inefficient salesmen. salesperson's total pay that is salary should be relatively low? A salesperson who is intrinsically motivated. Commission-only compensation plans are usually simpler and easier on payroll than compensation types combined with hourly or salary pay rates. A per diem expense plan pays the salesperson for all reported expenses. \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{-3,000}\\ The tools and resources you need to run your own business with confidence. Everything you need to prepare for and have a successful holiday season. Because her income is stable, planning and managing her personal finances is easier. their compensation plans to recognize team performance? Your base pay provides a steady income during seasons where commission may be more difficult to earn. The advantages of straight salary compensation include which of the following? For employers who dont want to pay employees after they leave, this type of compensation can incentivize employees to stay at the company. Plan C is to issue 100,000 shares of nonvoting, $3.75 preferred stock ($3.75 is the annual dividend paid on each share of preferred stock). \text{Oklahoma State} & \text{72} & \text{Texas} & \text{66} & \text{6}\\ Many appreciate the fallback stability of the base salary paired with performance incentives. Fixed salary paid to salesman at at the end of every month, irrespective of the sales made by him during the month is called Straight Salary. It tends to eliminate or reduce high-pressure selling, i.e., pushing items which are not needed by the customers. Which one of the following statements regarding global compensation is false? \end{array} Employers who pay by the hour should focus on increasing morale and showing employees they are valued in order to avoid turnover. For example, consider a salesman who frequents various retail stores or department stores to check inventory or take orders for replenishment. These have a significantly higher (pre-tax) contribution limit than company IRAs. \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 Base salary + sales commission-based pay. As the Vice President of Sales for a new startup company, you decide to hire and train your own field sales force. Estimate the percentage of NCAA games in which the winning team \hline Relevant resources to help start, run, and grow your business. Once the person has established himself in the area, the company can switch to performance-based salary. Applicable laws may vary by state or locality. 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. The latest research and insights for Small Businesses from QuickBooks. From a morale perspective, they can be more satisfied with their work-life balance since no one is dictating it. Everything you need to start accepting payments for your business. Compensation usually takes the form of monetary payment exchanged for time, labor and expertise. 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. Which of the following is not an advantage of combination plans? Today, January 26, 2004). Part A: Compare the advantages and disadvantages of straight salary and straight commission compensation plans. 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. Leadership Insights Spread the word: What you need to know about marketing your small business. One advantage of hourly pay is your eligibility for overtime. Employers are often hesitant to use this type of compensation, as payroll expenses can be high or unpredictable. Its critical for employers to keep this in mind when deciding between different types of compensation packages. What are the most popular types of compensation packages? These plans often include a straight salary income for training periods or during low seasons. Intuit Inc. does not have any responsibility for updating or revising any information presented herein. Get help with QuickBooks. Different companies offer different compensation plans to their sales representatives- the straight salary plan being one of the simplest. 6. Murray Kiser operates his own catering service. nonfinancial reward: All of the following are steps suggested for facilitating a sense of accomplishment in the salesforce Your paycheck is based on a specific percentage of the sales that you are able to generate. 1. | Priyansha tweets at. Employers have to think about who their target employee is and what that employee is looking for. Sales Costs: Under the straight salary method, sales costs are not matched with the sales. \\ 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. \\ Copyright 2023 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. Hence, this concludes the definition of Straight Salary Plan along with its overview. This offers the security of a salary with the greater earning potential of commission. Efficiency: Straight salary method does not distinguish between efficient and inefficient salesmen. Katey Maddux is a paddle boarder, music lover, Zumba instructor, and Founder and CEO of. Employees who are eager and top-performing are often attracted to this type of commission, however, since they know they can survive solely on their skills and experience. 3. Due to the complexity of the plan and its many compliance issues, few companies offer equity or stock in the short-term. If an employee makes no sales during a month, he doesnt get paid. \end{array} 8. 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. Additional information and exceptions may apply. costing little and reinforcing desirable behavior immediately after it occurs. By accessing and using this page you agree to the Terms and Conditions. What was the difference between the day's high and low for one share of Southern Copper? Advantages. \text{Symbol} & \text{Stock} & \text{High} & \text{Low} & \text{Last} & \text{Change} & \text{Volume} & \text{High} & \text{Low}\\ \hline Some of this is likely due to a generational shift in what employees are really looking for. In addition, employers also enjoy the flexibility of being able to increase or decrease employee hours seasonally or to reflect sales growth.a. The importance of matching the abilities and needs of sales recruits to the ____ cannot be overstated. 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. This type of compensation is well-suited for employees who work in a team-based culture. There is no additional performance or sales-based income added to the employees compensation. At the end of the pay period, this prepayment is drawn from how much the salesperson earned in commissions. Companies that pay their employees using PMR-based compensation will want to offer additional benefits to make up for their potentially low liquidity. Check to see how the salespeople would fare under the new plan by using sales figures from the previous year and calculating expecting compensation. Payroll essentials you need to run your business. They want to know precisely how much money they're going to make each month and to feel as though that income is dependable. The content on MBA Skool has been created for educational & academic purpose only. Fresh business resources are headed your way! 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. +1,500\\ This pay plan is the: Combination plan (Base salary + performance based commission). Before making any decisions, consider what type of compensation you can offer potential employees and what the stipulations of that compensation plan are. 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. Katey Maddux is a paddle boarder, music lover, Zumba instructor, and Founder and CEO ofMillennial Accounting, LLC in Miami, Florida. One benefit, from the employers perspective, is the company only pays commissions when the top line improves, so its beneficial from a profitability standpoint. How to find funding and capital for your new or growing business. Prepare an analysis to determine which plan will result in the highest earnings per share of common stock. One of your first tasks is to evaluate the level of compensation for your sales force. Straight salary compensation plans are ideal in industries where the normal structure does not involve (and might even prohibit) direct sales. , holiday pay, and parental leave) to lifestyle benefits (like flexible working hours. 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. \\ 5. In some organizations, selling is a collaborative effort. direct salespeople's behavior toward the attainment of organizational objectives. . +35,000\\ It has been reviewed & published by the MBA Skool Team. 3. -26,000\\ Some people won't work for anything other than a fixed salary. Let's explain the benefits with a clear example of an unpackaged salary versus an FBT exempt salary package. 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. Intuit does not endorse or approve these products and services, or the opinions of these corporations or organizations or individuals. The sales teams support each other to reach a common goal. Profit margin is one of the most popular types of compensation used by start-up companies. If you have less experience or education than other job applicants, taking a salaried . Due to the complexity and compliance issues involved, very few companies offer equity or stock. Operating costs are minimized during slack selling periods. 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 The workplace catchphrase you need to know. Overall compensation and rewards increase with the use of team selling. He holds a Bachelor of Science in marketing from York College of Pennsylvania. It is a very useful system of remunerating newly-appointed salesmen who are new to the job. A large direct sales company such as Avon would most likely compensate their salespeople in this The hourly rate can be less than the required minimum wage. Tax and bookkeeping basics you need to run and grow your business. Commission-only compensation can be valuable for employers because top performers get the most money. Does not provide security, so the reps will work harder. Provide an opinion of which type of compensation plan you would prefer as a professional salesperson. Salary programs are most appropriate when it is difficult to relate the efforts of individual salespeople to the size or timing of a sale. Teams in human resources, graphic design, or other supportive departments will often use straight salary compensation. Because they are self-employed, contractors are eligible for SEP IRAs. Companies are increasing incentives for foreign-based employment. What is the amount of net increase in owners equity during the month? Employers may use this type of compensation to keep payroll expenses low while still motivating employees to perform. Travel and entertainment costs are a relatively insignificant portion of a salesperson's compensation package. a supportive sales management leadership style. 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. 9. , which can vary depending on their states minimum wage. 2. 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. The advantages of straight salary compensation include which of the following? Starting salaries often begin far enough above hourly rates to be able to afford a down payment on a house or car. 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. Chris Joseph writes for websites and online publications, covering business and technology. Straight salary method of remuneration is simple. 2. Provide equal pay to all employees at the same level. O True O False. Which, if any, of the following sources available will help you in your task? &&&&&&&& -26,000\\ As the name suggests, straight salary compensation is just what you would expect. If he earns less in commissions, he must pay the remainder back to the company. What is salary pay? When the sales effected by the individual salesman cannot be isolated (i.e., when the sales are made collectively by two or more salesmen). In case the salesperson shows high sales performance, the firm increases its salary. All of the following are typical reimbursable expense items except. 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. the working capital requirements are lessened with the straight-salary compensation plan. 4. Which of the following statements regarding sales contests is true? tend to produce too many salesforce objectives which are of the crisis-resolution variety. There may be multiple rates of bonuses and commission, and payroll managers must have a system in place to keep track of everything. , LLC in Miami, Florida. Whos using straight hourly compensation? Since there are no (monetary) incentives to work harder, a non-competitive environment may tempt employees to become complacent, limiting the companys growth. salesforce include all of the following except. 6. The primary benefit of salary-plus-commission plans is they allow the compensation program to be tailored to the needs of a particular firm.