\begin{array}{|l|l|c|c|c|c|c|c|c|} \hline Browse the definition and meaning of more similar terms. Guaranteed income With a salary plus commission plan, you still earn a base salary regardless of how many products you sell. compensation plans are used as a way to motivate employees. Example: Each rep in your company earns a straight salary of $75,000 a year, or $1,440 a week (gross). A job like this is more likely to have flexible working hours or the ability to work from home. $$ On the other hand, when you pay commission, you pay when an employee does something to cause your business to see a profit. In this type of compensation, income is solely based on sales made. Give your reasons. 8,000 && 101,000\\ On the other hand, TVC can lead to hostility between employees if they dont feel the workload or efforts of all representatives are balanced. Cost of Administration: The cost of administration of straight salary plan is less than that of straight commission plan. The most commonly used definitions of motivation include these three dimensions: Use the table below. \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 For each frequency distribution, suggest "nice" bins. \text{Duke} & \text{85} & \text{Georgetown} & \text{66} & \text{19}\\ Based on this information, which salesperson compensation plan would work best? &&&& -2,000\\ Is your team struggling with burnout and a lack of fulfillment at work? This type of compensation plan is every salespersons dream. However, a straight salary plan also has its own advantages. Which one of the following statements regarding global compensation is false? Straight salary method of remuneration Meaning, Suitability, Advantages, Disadvantages. As a result, salaried workers often dont track hours worked. In some organizations, selling is a collaborative effort. It provides stability of earnings without wide fluctuations. The only downside with territory volume compensation plan is that it can lead to hostility between co-workers if certain members feel that effort isnt equally divided. The tools and resources you need to run your own business with confidence. Melissa Skaggs shares the buzz around The Hive, Straight salary|Salary plus commission|Hourly|Hourly plus commission |Commission-only|Territory volume|Profit margin/revenue-based|Residual commission|Contractor commission|Hourly vs Salary. 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? scores more than 90 points. 1. It does not provide any incentive for hard work. This type of compensation plan puts less pressure on individuals and fosters team-building. a. Everything you need to prepare for and have a successful holiday season. 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 \text{Bal. 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. Salary plus commission is a balance of both stability and performance-based income. The most common exemptions are executive, administrative, and professional exemptions. Which of the following statements regarding sales contests is true? 2. -7,200\\ Which, if any, of the following sources available will help you in your task? 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. Which of the following is not an advantage of the commission compensation plan? Teams in human resources, graphic design, or other supportive departments will often use straight salary compensation. 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. This content is for information purposes only and should not be considered legal, accounting, or tax advice, or a substitute for obtaining such advice specific to your business. Employees are guaranteed to receive at least base salary to pay the bills, even during a time period when their sales are low. Applicable laws may vary by state or locality. A major objective of a well-designed compensation package is to: 1. On a straight salary, they will be paid this regardless of how many deals they close. ii) There will be no surprise of payroll expenses. elect to receive regular straight time pay or bank compensatory time at their straight time rate. The companys income tax rate is 35%. 4. Salespeople should compete in teams with each member of the team making a contribution to the group's total goal. With ambitious expansion plans, BIA has decided it needs a second service hub on the continent, to complement its large Heathrow (London) repair facility. 5. international stocks and bonds 2. It is usually easy to design pay plans that fully meet the goals and needs of the firm, customers, and salespeople. The most serious disadvantage of a straight-salary compensation plan is. Which of the following is/are most likely to be among them? Q&A With Jane If you choose this plan, you'll pay your reps using a mix of base salary and performance-based rewards. Sparks holds a Bachelor of Arts in business. So, it can be easily understood by all salesmen. We dont want you to miss anything. Sales force compensation should not only meet the goals of the firm, but should also communicate to the sales force what is important. Which of the following is not a factor to be considered when developing a commission-only plan? Long ago, we wrote about the importance of a compensation plan in an organization. And because there is no financial security that kicks in if sales arent made, those who dont earn enough leave or burn out quickly. Prepare an analysis to determine which plan will result in the highest earnings per share of common stock. A regular and stable income can do much to develop a loyal and well-satisfied salesman. A change from straight commission to straight salary. 5. As the various salesmen on a particular scale of pay are paid the same remuneration, it avoids jealousy among the salesmen. Required fields are marked *. Part B: As a retail sales manager of a large superstore, one of your responsibilities is to train the newly hired employees. Which of the following is not a guideline recommended in the management of motivation? Employees who prefer to set their own schedules or be their own boss often thrive in commission-only environments. direct salespeople's behavior toward the attainment of organizational objectives. costing little and reinforcing desirable behavior immediately after it occurs. 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. For a new salesperson, a salary provides a steady income during the training period when he is still learning the sales methods and products of the company. But straight commission method is based on the sales effected by the salesmen and not on the time spent on the job. This compensation category also includes restaurant employees paid mostly in tips. The most serious disadvantage of a straight-salary compensation plan is. Under this method, there is no direct relationship between sales revenue and selling costs. 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. In the same vein, contractors are not subject to withholding and are therefore responsible for their own taxes (the self-employment tax). In my experience, both in the corporate (salary) and retail (hourly) space, an employee compensation plan encompasses salary orhourly payand any benefits added to the package. Your base pay provides a steady income during seasons where commission may be more difficult to earn. This article has been researched & authored by the Business Concepts Team. What is important here is building a close relationship with the retailer and satisfying the customers needs. The Management Dictionary covers over 2000 business concepts from 5 categories. 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. 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. 12. key activities within the company, he/she is offering this non-financial reward: A firm offering a college tuition reimbursement program has made a commitment to providing this bonuses for sales target achievement), in others salespersons receive commissions as a percentage of the sales they were involved in. is considered a serious offense, which, if detected, often leads to termination of employment. , holiday pay, and parental leave) to lifestyle benefits (like flexible working hours. This means you can always keep earning more money if you're willing to put in some extra hours of work. They should be made during recessionary periods. \hline Its worth noting that inconsistent working hours can also hurt employees who may be counting on a consistent income. 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. Although quite popular, salary compensation plans have some disadvantages. than to older salespeople: When a sales manager assures salespeople that they fulfill a critical role in revenue production and other 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. __________ tends to help give the sales force the needed push to sell complex products or services and can be used to redirect salesperson efforts toward specific product lines; under this plan administrative costs tend to be high. Provide an opinion of which type of compensation plan you would prefer as a professional salesperson. Part A: Compare the advantages and disadvantages of straight salary and straight commission compensation plans. For employers who dont want to pay employees after they leave, this type of compensation can incentivize employees to stay at the company. Therefore, employers are not required to pay overtime if employees work more than 40 hours per week. But straight commission method distinguishes between efficient and inefficient salesmen. Design the plan centrally and dictate to local countries. Before making any decisions, consider what type of compensation you can offer potential employees and what the stipulations of that compensation plan are. It has been reviewed & published by the MBA Skool Team. 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. 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). You were given the mandate by your boss to change the compensation plan so that the total salesperson compensation (salary plus commission) is lowered. However, successful salespeople tend to make a lot of money with commission than with a salary plus commission job. virtually automatic, this form of commission rate would be appropriate: An example of a selling situation requiring a commission split would be. Because they are self-employed, contractors are eligible for SEP IRAs. Many appreciate the fallback stability of the base salary paired with performance incentives. 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. \text{Kansas} & \text{78} & \text{Colorado} & \text{57} & \text{21}\\ 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 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. 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. The major drawback to salary plus commission plans is that they are more expensive and more costly to administer. One advantage of hourly pay is your eligibility for overtime. Even if the employee no longer does work on the account, so long as the account continues to perform, the employee will receive a cut of the profits. 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? Service focus: Such a plan works well for sales positions where pushing a product may not be necessary and customer service is of utmost importance. Dana Sparks has been a professional writer since 1990. , a pet-friendly working environment, etc.). Part A: Compare the advantages and disadvantages of straight salary and straight commission compensation plans. \begin{array} {c} \end{array} 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. \\ Straight Salary Straight salary sales compensation plans aren't very common, but they do have a place in some organizations. Provide a mix of both compensation and noncompensation rewards comparable to other firms. Readers should verify statements before relying on them. Per the IRS website, the general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. Employers are also required to pay employees the. Since no one is taking out taxes for them, it is up to the contractor to budget and remit taxes quarterly to prevent a fine and a huge tax bill at year-end (April 15). issue a press release detailing the company's changes. Employees who like working in sales but also in a team environment will be attracted to such compensation, as it takes the pressure off the individuals performance. \textbf{\textsf{Accounts}} && \textbf{\textsf{Murray Kiser,}} && \textbf{\textsf{Murray Kiser,}} && \textbf{\textsf{Fees}} \hspace{6pt}\\ An in-depth guide for business owners, Financial statements: What business owners should know, Small business grants: 20+ grants and resources to fund your future without debt, How to choose the best payment method for small businesses. The company sets a minimum and maximum range that can increase, decrease or remain the same, depending on the workers performance. Contractors can determine their own fees, working hours, employees, etc. Is good for a financially weak company. So what is compensation? In this plan, you will pay a straight salary to your employees and no commission, no bonus, and no incentives. \text{Arizona} & \text{90} & \text{Oregon} & \text{66} & \text{24}\\ 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. 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. \text{Winning Team} & \text{Points} & \text{Losing Team} & \text{Points} & \text{Winning Margin}\\ As the name suggests, straight salary compensation is just what you would expect. \text{Symbol} & \text{Stock} & \text{High} & \text{Low} & \text{Last} & \text{Change} & \text{Volume} & \text{High} & \text{Low}\\ \hline Everything you need to start accepting payments for your business. Each time a commission check is cut you have the satisfaction of knowing that it's due to something positive. But when that same group opened up about things that weren't essential to the negotiation, 59 percent were able to strike a deal. tend to produce too many salesforce objectives which are of the crisis-resolution variety. , LLC in Miami, Florida. 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). Chris Joseph writes for websites and online publications, covering business and technology. 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. 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. pharmaceutical sales) is the most common type of sales process used. \textbf{\textsf{Cash}} & \bm{+} & \textbf{\textsf{Supplies}} & \bm{+} & \textbf{\textsf{Land}}\\ An incentive pay cannot work in such a case. Although most compensation plans are incentivized, the straight salary plan is a method of compensation in which the salespersons receive a straight-forward fixed salary with no commissions. Once you own property, you should take steps to protect it from loss, theft, and damage. 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. This type of plan is often found in multi-level marketing (MLM) companies. By accessing and using this page you agree to the Terms and Conditions. \text{Kentucky} & \text{71} & \text{Notre Dame} & \text{63} & \text{8}\\ Such a plan is quite common in the services industry as well as in the industrial goods sector. Because her income is stable, planning and managing her personal finances is easier. The goal of the compensation package is to reward employees for their efforts without putting the firm's profitability in jeopardy. From big jobs to small tasks, we've got your business covered. On the other hard, straight commission method does not give the management sufficient control over the salesmen. Security and collaboration: The straight salary plan provides a more stress-free working environment for the salespersons. 2. Straight salary method of remuneration is simple. Straight salary compensation plans are ideal in industries where the normal structure does not involve (and might even prohibit) direct sales. Companies often feel they can justify a lower salary or rate if they include a more robust benefits package. To implement a new or modified reward system, sales managers should do all of the following except. According to the text, which of the following is not one of the rewards typically offered to salespeople? finds the job to be inherently rewarding. -7,200\\ Overall compensation and rewards increase with the use of team selling. Depending on a companys compensation strategy, there are both pros and cons for hourly versus salaried employees. Although quite popular, salary compensation plans have some disadvantages. He holds a Bachelor of Science in marketing from York College of Pennsylvania. 6. Some disadvantages of straight salary compensation may include reduced retention and high turnover if employees dont see opportunities to increase their pay. No assurance is given that the information is comprehensive in its coverage or that it is suitable in dealing with a customers particular situation. Base salary + sales commission-based pay. Provide equal pay to all employees at the same level. 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. 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. 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. Benefit packages amount to a negligible portion of the cost of keeping a salesperson in the field. PMR is common in sales and is good for startups with low liquidity. One thing to keep in mind: If the commission rates are too low, they may seem disingenuous and could decrease morale or cause bitterness among employees. Can I Get Fired For Leaving A WhatsApp Group? -26,000\\ 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. Those who sell below $35,000 will not receive commissions. How much you spend on salaries often has little to do with your profits. Starting salaries often begin far enough above hourly rates to be able to afford a down payment on a house or car. The primary benefit of salary-plus-commission plans is they allow the compensation program to be tailored to the needs of a particular firm. If you have less experience or education than other job applicants, taking a salaried .

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