You were given the mandate by your boss to change the compensation plan so that the total salesperson compensation (salary plus commission) is lowered. Security and collaboration: The straight salary plan provides a more stress-free working environment for the salespersons. The compensation is usually calculated by finding out territory volume. 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. 1. 2. The most common exemptions are executive, administrative, and professional exemptions. Your boss thinks you should implement a salary plus commission plan with an incentive ceiling. Advantages of straight salary. Everything you need to know about managing and retaining employees. Those who sell below $35,000 will not receive commissions. The economy has entered a period of recession, and even the Administration's economists predict that it will remain so for at least three more quarters. \text{Purdue} & \text{76} & \text{Michigan State} & \text{70} & \text{6}\\ Selling situations that require salespeople to perform special services for customers are more likely to be performed when salespeople are on salary. Defined by the FLSA, tipped employees are those who receive more than $30 per month in tips. Readers should verify statements before relying on them. Which of the following statements regarding sales contests is true? 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. \underline{\underline{2,300}} && \underline{\underline{101,000}} && \underline{\underline{-2,000}} && \underline{\underline{35,000}} && \underline{\underline{-29,000}}\\ \\ \\ \\ Additional information and exceptions may apply. Straight salary method of remuneration is simple. 5. The sales teams support each other to reach a common goal. The workplace catchphrase you need to know. 11. Under this plan, companies compensate its employees entirely on the profits made by the business. WinningTeamArizonaDukeFloridaStateKansasKentuckyLouisvilleOklahomaStatePurdueStanfordWisconsinPoints90857578716572767776LosingTeamOregonGeorgetownWakeForestColoradoNotreDameTennesseeTexasMichiganStateSouthernCalIllinoisPoints66667057636266706756WinningMargin241952183661020. Person B works for an NFP and is part of a salary packaging program. Here Are the Pros of Straight Commission. \end{array} It looks like its raining raises in corporate Japan as more and more companies are following in the footsteps of Uniqlo and announci Human Resources (HR) departments have evolved significantly over the past few years. The content on MBA Skool has been created for educational & academic purpose only. 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. A salesperson who is intrinsically motivated. a. salaries are a fixed cost to the firm and thus tend to decrease proportionally as sales increase. Although quite popular, salary compensation plans have some disadvantages. While in certain compensation plans, the salespersons receive benefits on accomplishment for specific tasks (e.g. direct salespeople's behavior toward the attainment of organizational objectives. Plan A is to borrow at 6%. Fringe Benefits and Salary Plan based upon the employee's rate of pay immediately preceding retirement. The introduction of HR technology has revolutionized the way HR departments operate. 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 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 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? TVC is most often used in team-based corporate cultures. Some terms may not be used. &&\textbf{\textsf{Assets}}\\ In this plan, you will pay a straight salary to your employees and no commission, no bonus, and no incentives. The company sets a minimum and maximum range that can increase, decrease or remain the same, depending on the workers performance. It is a very useful system of remunerating newly-appointed salesmen who are new to the job. Happy hours are a great way to connect with colleagues, share experiences, and have some fun together. Your email address will not be published. She loves training, creating processes, and introducing her clientele to new apps and technology. pharmaceutical sales) is the most common type of sales process used. Example: Each rep in your company earns a straight salary of $75,000 a year, or $1,440 a week (gross). In this situation, employers have to pay overtime, despite the employee being salaried. 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. Companies looking for long-term growth as opposed to short-term sales may opt for this type of compensation as well. Motivated salespeople may search for this type of income, knowing that if they work really hard early on, they can work less later and still make the same income. Is it just monetary? The directors are considering three financing plans. Employers have to think about who their target employee is and what that employee is looking for. Which of the following accurately describe per diem expense plans? https://quickbooks.intuit.com/r/payroll/employee-compensation-benefits-guide/. Lavish formal recognition programs can provide all of the following benefits to a salesforce except. Which of the following is not a form of nonfinancial compensation? \end{array} Subscribe to our newsletter and stay updated on the latest HR news and trends. This requires very clearly defined territory outlines and territories that produce enough income to support competitive wages. Companies often feel they can justify a lower salary or rate if they include a more robust benefits package. As the various salesmen on a particular scale of pay are paid the same remuneration, it avoids jealousy among the salesmen. Straight salary method of remuneration is simple. This type of environment tends to foster a sense of camaraderie and can be good for company culture and morale if done well. Since there are no (monetary) incentives to work harder, a non-competitive environment may tempt employees to become complacent, limiting the companys growth. 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 But when that same group opened up about things that weren't essential to the negotiation, 59 percent were able to strike a deal. Currently editor at The HR Digest Magazine. The board of directors of this family-owned company believes that Park N Fly could earn an additional $1.5 million income before interest and taxes by expanding into new markets. Let's explain the benefits with a clear example of an unpackaged salary versus an FBT exempt salary package. So, it does not encourage salesmen to do hard work. Paycheck calculator for hourly and salary employees. Salespeople may also be paid on a straight salary basis in which there is no opportunity to earn incentives. Which of the following is an advantage of a straight-commission compensation plan? Minimum Income: Straight salary method assures a minimum income to the salesmen. View the full answer. Security and collaboration: The straight salary plan provides a more stress-free working environment for the salespersons. Another advantage of this pay structure is that it helps in attracting more talent . MBA Skool is a Knowledge Resource for Management Students, Aspirants & Professionals. 8,000 && 101,000\\ Whos using straight salary plus commission compensation? Sales contests will continue to be an important tool for achieving expedient results. , holiday pay, and parental leave) to lifestyle benefits (like flexible working hours. a. Applicable laws may vary by state or locality. Perhaps the most serious shortcoming of straight-commission plans is that. Are benefits included in the definition? && +1,500\\ Are they just trying to pay their way through college? Once the person has established himself in the area, the company can switch to performance-based salary. Your salespeople are paid on commission. The Management Dictionary covers over 2000 business concepts from 5 categories. Employees who receive it are considered nonexempt by the FLSA, meaning their compensation is regulated. Once the person has established himself in the area, the company can switch to performance-based salary. ____________ is the easiest plan to administer and budget for. Good salespeople can continue to receive residual commission ever after they leave the company through negotiation. Is good for a financially weak company. One benefit, from the employers perspective, is the company only pays commissions when the top line improves, so its beneficial from a profitability standpoint. 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. as well as U.S. securities. Resources to help you fund your small business. 4. Celebrating the stories and successes of real small business owners. Companies are increasing incentives for foreign-based employment. When determining the financial compensation mix, the sales manager must. Your base pay provides a steady income during seasons where commission may be more difficult to earn. An incentive pay cannot work in such a case. 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). Based on this information, which salesperson compensation plan would work best? Your positive feeling towards inclusion at work should be synced with your actions on making a change. Does not provide security, so the reps will work harder. Which of the following is not a factor to be considered when developing a commission-only plan? Your email address will not be published. \hline \text{Arizona} & \text{90} & \text{Oregon} & \text{66} & \text{24}\\ Further, the straight commission motivates poor performers to become more productive since it rewards good performers (Johnston and Marshall, p. 329). This type of compensation is well-suited for employees who work in a team-based culture. \hline\\ 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. Straight salary method promotes team-spirit and cooperation among the salesmen in the case of joint sales. \text{Oklahoma State} & \text{72} & \text{Texas} & \text{66} & \text{6}\\ According to a survey of sales executives reported in the text, the most popular sales incentive is. Fresh business resources are headed your way! It could be difficult to attract top performers who know they can make more in a job that rewards their work with a more commission-based pay structure. 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. Formal recognition programs have a better chance of success if sales managers do all of the following Teams in human resources, graphic design, or other supportive departments will often use straight salary compensation. If he earns less in commissions, he must pay the remainder back to the company. Some people won't work for anything other than a fixed salary. 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. 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. Due to the complexity and compliance issues involved, very few companies offer equity or stock. 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. Therefore, employers are not required to pay overtime if employees work more than 40 hours per week. tend to produce too many salesforce objectives which are of the crisis-resolution variety. On the other hand, when you pay commission, you pay when an employee does something to cause your business to see a profit. Everything you need to prepare for and have a successful holiday season. By accessing and using this page you agree to the Terms and Conditions. The commission can include (but is not limited to) a percentage of personal sales, a percentage of team sales, bonuses, or overtime pay. In some organizations, selling is a collaborative effort. 40 Questions to Ask Before You Accept A Job Offer. Provide an opinion of which type of compensation plan you would prefer as a professional salesperson. Tips may be considered part of the employees wages, but the employer must pay no less than $2.13 an hour in direct wages and make sure that the amount of tips received is enough to meet the remainder of the hourly minimum wage. 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. The most commonly used definitions of motivation include these three dimensions: Use the table below. 2. Building an effective sales force compensation plan boils down to: When establishing goals for the compensation plan, a sales manager must consider: Competitive compensation packages in the marketplace. A straight salary can greatly benefit someone who is transferring to a new territory. 10. There are many people who would simply prefer to work with the relative security of a salary position. When the salesmen are required to create markets for a product. \\ Straight salary plans are not popular with salespeople because: They don't provide strong incentives for extra effort. Under this method, there is no direct relationship between sales revenue and selling costs. Hourly plus commission compensation does have its disadvantages as well. Employees may be confused as to how pay is calculated, so transparency is important. However, the$5 million that the business needs for growth cannot be raised within the family. The importance of the salesperson's personal skills in making sales is slight. Straight salary compensation plans are ideal in industries where the normal structure does not involve (and might even prohibit) direct sales. Hourly roles can often be perceived as less valuable or easier to replace. 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. nonfinancial reward: All of the following are steps suggested for facilitating a sense of accomplishment in the salesforce If an employee is required to work on a holid ay as a regularly scheduled work day, . Your ultimate goal is to control selling expense and provide extra rewards for added results. 6. Which one of the following statements regarding global compensation is false? 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). The different types of compensation include . This type of sales compensation plan is employed in companies which prohibits direct sales. Such a plan is quite common in the services industry as well as in the industrial goods sector. A change from straight commission to straight salary. The main differences between the straight salary method and straight commission method are explained below: Straight Salary Method vs Straight commission Method. In this compensation structure, the employee receives a set hourly rate, plus a percentage of their sales. 3. \end{array} 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 In most companies, the bonus is usually tied to a budgetor other target that has little significance to the employee. their compensation plans to recognize team performance? Which of the following is not an advantage of the commission compensation plan? Person A pays over $18,000 in tax and receives a net income of around $62,000. \underline{\underline{14,800}} && \underline{\underline{\ \ \ 2,500}} && \underline{\underline{90,000}} \\ \\ \\ \\ costing little and reinforcing desirable behavior immediately after it occurs. 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. All of the above. After initial investigations by Holmes Miller, head of the Operations Department, BIA has narrowed the list to 9 cities. Are you ready for a pay raise? __________ 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. Which of the following is not mentioned in the text as a challenge to sales managers attempting to adjust You can tweak the budget annually by deciding whether the business has flourished enough to offer merit raises. \text{Louisville} & \text{65} & \text{Tennessee} & \text{62} & \text{3}\\ \text{Stanford} & \text{77} & \text{Southern Cal} & \text{67} & \text{10}\\ Provide an opinion of which type of compensation plan you would prefer as a professional salesperson. 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. 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. 2. 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). For example, since the pay of salaried salespeople is not directly related to performance, some of them may not make all of their calls or give the firm "a full day's work for a day's pay." If you have less experience or education than other job applicants, taking a salaried . Accordingly, the information provided should not be relied upon as a substitute for independent research. I thought wed follow up on that post by exploring the six different types of compensation plans in depth. 1. Many millennials, however, are more focused on work-life balance and lifestyle plans, valuing more vacation or the freedom to work from home. For you as a business owner, paying fixed salaries allows you to precisely know how much you're going to pay out each month in labor costs and to budget accordingly. Disadvantages of straight salary compensation. When it comes to employee compensation, there isnt a one-size-fits-all solution. except. This compensation category also includes restaurant employees paid mostly in tips. Benefits or Advantages A regular income gives the salesman a good degree of security. \textbf{\textsf{Payable}} \hspace{4pt} &\bm{+} & \textbf{\textsf{Capital}}\hspace{17pt} & \bm{-} & \textbf{\textsf{Drawing}} \hspace{15pt} & \bm{+} & \textbf{\textsf{Earned}} & \bm{-} & \textbf{\textsf{Expenses}}\\ Straight salary method of remuneration is found suitable and is usually adopted under the following circumstances: 1. 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. At the end of the pay period, this prepayment is drawn from how much the salesperson earned in commissions. The advantages of straight salary compensation include which of the following? $$ Before making any decisions, consider what type of compensation you can offer potential employees and what the stipulations of that compensation plan are. Tax and bookkeeping basics you need to run and grow your business. Travel and entertainment costs are a relatively insignificant portion of a salesperson's compensation package. It tends to eliminate or reduce high-pressure selling, i.e., pushing items which are not needed by the customers. Under Straight salary method, a salesman is paid remuneration on time basis. What change in the firm's salesforce reward system might be in response to customer's needs? What is the amount of net increase in owners equity during the month? Match the terms with the definitions. \textbf{\textsf{Cash}} & \bm{+} & \textbf{\textsf{Supplies}} & \bm{+} & \textbf{\textsf{Land}}\\ The salespersons perfect plan, a residual commission compensation (RCC) plan pays employees a commission as long as the accounts are producing revenue. Employers are often hesitant to use this type of compensation, as payroll expenses can be high or unpredictable. 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. Profit margin is one of the most popular types of compensation used by start-up companies. This $35,000 level is called: Your customer's buying cycle is approximately 2 years and your reps need to invest significant amounts of time understanding their customers. An employee who works only on salary has little external motivation to go above and beyond. scores more than 90 points. Employees who like to work on teams and dont want their compensation to be judged on individual performance may be attracted to this kind of plan as well. Startup companies using profit margin/revenue based compensation plan can also incorporate long-term incentives such as stock to build loyalty and a valuable sales base. The tools and resources you need to take your business to the next level. 8. Benefit packages amount to a negligible portion of the cost of keeping a salesperson in the field. Its critical for employers to keep this in mind when deciding between different types of compensation packages. . Each increase and decrease in owners equity, except transaction (5)\left(5\right)(5), affects net income. salesperson's total pay that is salary should be relatively high? 2. They don't want to worry about the inconsistencies associated with a commission-based pay. &&&&&& 35,000\\ \\ In this situation, employees only receive their bonus if the district, division, or even continent hits its sales goals. In a profit margin/revenue-based (PMR) plan, employees are compensated based on the profitability of the company. This compensation type tends to attract fewer people since there is no secure base pay. However, a straight salary plan also has its own advantages. It assures a steady minimum income to the salesmen. 8. As the name suggests, straight salary compensation is just what you would expect. An advantage of the straight salary plan for compensating salespeople is that it: Provides a direct relationship between sales and expenses. c. GPAs of 250 first-semester college students (xmin=2.25,xmax=3.71)\left(x_{\min }=2.25, x_{\max }=3.71\right)(xmin=2.25,xmax=3.71). Contractors can determine their own fees, working hours, employees, etc. ___________ rewards are those that are given in return for acceptable performance or effort. It does not provide any incentive for hard work. Because so many hourly employees work in entry-level positions, education requirements are usually lower than those of salaried positions, which adds to this assumption. However, a straight salary plan also has its own advantages. Its worth noting that inconsistent working hours can also hurt employees who may be counting on a consistent income. 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. In case the salesperson shows high sales performance, the firm increases its salary. \\ 3. , LLC in Miami, Florida. Person A receives a salary of $80,000. Did your choice agree with Sturges' Rule? \text{Bal.} From a payroll standpoint, this type of compensation is harder to administer. Differences between Straight Salary and Straight Commission Method, Business Environment Analysis | Objectives & Process, 5 Important Classification of Business Environment, Localisation of Industries | Meaning, Advantages, Disadvantages, Storage and Warehousing | Meaning, Functions, Advantages, Kinds, Sole Trader Business | Advantages | Disadvantages | Suitability, How do Business Diversification affect performance of, Job Evaluation | Meaning & Definition |, Supervision | Definition | Functions of supervisor, Sole Trader Business | Meaning | Definition, Primary functions of Commercial banks in accepting, RBI | Origin | Objectives | Organization, Concepts of Job Analysis | Meaning, Procedure,, Arguments in favor of Social Responsibility of, Accountlearning | Contents for Management Studies |. +35,000\\ \\ 5. If your family does not have a complete home inventory, encourage your parents or other adults with whom you live to create one. What was the difference between the day's high and low for one share of Southern Copper? Base salary + sales commission-based pay. \text{Symbol} & \text{Stock} & \text{High} & \text{Low} & \text{Last} & \text{Change} & \text{Volume} & \text{High} & \text{Low}\\ \hline Uniqlos Bold Move: Addressing Employee Burnout with a 40% Pay Increase, From Boring to Bravo: How to Revamp Your Employee Newsletter and Keep Your Team Interested, From Genius to Digital Nomad: A Look at the Evolution of Creative Job Titles, A Stroke of Luck: Kentucky Woman Wins $175,000 in Office Christmas Party Lottery, HR Technology Trends: Leveraging Technology to Streamline HR Operations, HR Compliance: Staying Compliant with Changing Labor Laws and Regulations, Managing Remote Teams: Best Practices for Leading a Distributed Workforce, Organizational Change Management: Navigating Change with Effective Change Management Strategies, Virtual Happy Hours: Building Team Camaraderie While Working Remotely, Workforce Planning: Anticipating Future Skill Needs and Building a Talent Pipeline, Unlocking the Power of LinkedIn: How to Leverage its Features for a Successful Job Search, Ditch the Monday Morning Commute: How Remote Work Can Benefit Your Employees and Business, Building a Strong Company Culture and Attracting Talent, Leading the Charge for Inclusive and Sustainable Hospitality, Championing Diversity and Inclusion at Bank of America. Companies looking for a simple or consistent payroll solution without any surprise payroll expenses will likely build their compensation offering around straight salaries. 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. 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. issue a press release detailing the company's changes. \bm{=}\\ \bm{=} \\ \\ \\ \\ \\ \\ \\ \\ \\ \\ \\ \\ From big jobs to small tasks, we've got your business covered. Summary financial data for February are presented in equation form as follows. Some of these jobs also have flexible schedules, which can be beneficial to employees. 3. -26,000\\ . For example, consider a salesman who frequents various retail stores or department stores to check inventory or take orders for replenishment. 6. A straight salary can greatly benefit someone who is transferring to a new territory. Salespeople should compete in teams with each member of the team making a contribution to the group's total goal. Total sales for the territory are then split among the sales reps in that territory. 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.
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