The company sets a minimum and maximum range that can increase, decrease or remain the same, depending on the workers performance. 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. A straight salary plan can be advantageous in certain situations. As a result, salaried workers often dont track hours worked. 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. Overall compensation and rewards increase with the use of team selling. It could reduce retention and increase turnover. 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. You can tweak the budget annually by deciding whether the business has flourished enough to offer merit raises. \text{Kansas} & \text{78} & \text{Colorado} & \text{57} & \text{21}\\ 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. Benefit packages amount to a negligible portion of the cost of keeping a salesperson in the field. Companies looking for a simple or consistent payroll solution without any surprise payroll expenses will likely build their compensation offering around straight salaries. Prepare an analysis to determine which plan will result in the highest earnings per share of common stock. Under this plan, companies compensate its employees entirely on the profits made by the business. Which of the following is not mentioned in the text as a challenge to sales managers attempting to adjust One advantage of hourly pay is your eligibility for overtime. \end{array} 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. As the various salesmen on a particular scale of pay are paid the same remuneration, it avoids jealousy among the salesmen. The earnings of a person who is working as an independent contractor are subject to self-employment tax.. The straight salary plan is one of the simplest compensation plans that companies offer to their employees, particularly sales representatives. Sales contests will continue to be an important tool for achieving expedient results. Salaried employees receive an equal portion of their annual compensation every week. \text{ } & \text{ } & \text{52-Week} & \text{52-Week} & \text{ } & \text{ } & \text{Sales} & \text{ } & \text{ }\\ Factors that might affect commission rates include the difficulty of the sale, education and training required, costs associated with the geographical location, work environment, the process of approaching clients, and bonus structures (if applicable). $$ 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. \begin{array}{l} Employers may use this type of compensation to keep payroll expenses low while still motivating employees to perform. 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. But when that same group opened up about things that weren't essential to the negotiation, 59 percent were able to strike a deal. Compensation usually takes the form of monetary payment exchanged for time, labor and expertise. It can also be beneficial if a firm is entering a new market or location. , holiday pay, and parental leave) to lifestyle benefits (like flexible working hours. -2,000\\ The main differences between the straight salary method and straight commission method are explained below: Straight Salary Method vs Straight commission Method. A sample of 10 NCAA college basketball game scores provided the following data (USA Are they just trying to pay their way through college? 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. && +1,500\\ Person B works for an NFP and is part of a salary packaging program. 6. Each line designated by a number indicates the effect of a transaction on the equation. 3. Whos using straight salary compensation? \textbf{\textsf{Accounts}} && \textbf{\textsf{Murray Kiser,}} && \textbf{\textsf{Murray Kiser,}} && \textbf{\textsf{Fees}} \hspace{6pt}\\ It does not distinguish between efficient and inefficient salesmen, as the same remuneration is paid to both efficient and inefficient salesmen. The key to this type of plan is to offer enough stability that employees feel satisfied and secure but to pair that salary with a commission that motivates stellar performance. Offers considerable incentive for the salespeople. Selling situations that require salespeople to perform special services for customers are more likely to be performed when salespeople are on salary. Intuit accepts no responsibility for the accuracy, legality, or content on these sites. Security and collaboration: The straight salary plan provides a more stress-free working environment for the salespersons. they contribute little to company loyalty, resulting in potential salesforce control problems. compensation plans are used as a way to motivate employees. The advantages of straight salary compensation include which of the following? However, if the employees commissions, plus their hourly rate, are together less than the minimum wage, the employer is required to make up the difference. Your earning potential is unlimited. 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. Millennial Accounting primarily serves two nichesreal estate and property managementand is on a mission to serve, inspire, educate, and problem-solve. 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. 3. 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. Which of the following is an advantage of a straight-commission compensation plan? \text{Purdue} & \text{76} & \text{Michigan State} & \text{70} & \text{6}\\ Provide an opinion of which type of compensation plan you would prefer as a professional salesperson. Straight salary plans often do not provide strong incentive for extra effort. Nevertheless, salary compensation plans are appropriate in a number of situations. 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. Laws differ by state, so do your research before making any decisions. Security and collaboration: The straight salary plan provides a more stress-free working environment for the salespersons. You can tweak the budget annually by deciding whether the business has flourished enough to offer merit raises. \text{Winning Team} & \text{Points} & \text{Losing Team} & \text{Points} & \text{Winning Margin}\\ Some of these jobs also have flexible schedules, which can be beneficial to employees. In designing plans one must balance the goals of the firm, as well as the needs of the sales force and customers. I thought wed follow up on that post by exploring the six different types of compensation plans in depth. Different companies offer different compensation plans to their sales representatives- the straight salary plan being one of the simplest. Copyright 2023 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. 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. 40 Questions to Ask Before You Accept A Job Offer. Example: Each rep in your company earns a straight salary of $75,000 a year, or $1,440 a week (gross). It assures a steady minimum income to the salesmen. Get help with QuickBooks. The nine different types of compensation packages include: This type of compensation refers to a set annual amount, divided by the years pay periods to get a pay rate weekly, every two weeks, or monthly. In this plan, you will pay a straight salary to your employees and no commission, no bonus, and no incentives. Wage caps are used by some firms to prevent salespeople from making too much money. The ideal compensation plan motivates salespeople to achieve their own and the company's objectives. The ATO considers this $80,000 taxable income. They don't want to worry about the inconsistencies associated with a commission-based pay. Which of the following is not an advantage of combination plans? b. Ages of 50 airplane passengers (xmin=12,xmax=85)\left(x_{\min }=12, x_{\max }=85\right)(xmin=12,xmax=85). a. 5. The major drawback to salary plus commission plans is that they are more expensive and more costly to administer. The most serious disadvantage of a straight-salary compensation plan is. Using the mean and standard deviation found in part (a), bonuses for sales target achievement), in others salespersons receive commissions as a percentage of the sales they were involved in. It has been reviewed & published by the MBA Skool Team. international stocks and bonds &&\textbf{\textsf{Assets}}\\ \\ The major disadvantage is that the salespersons may not feel motivated and would only complete the minimum requirements. Expert Answer. Take a reactive approach to seeking out motivational problems and sources of frustration in the salesforce. According to a survey of sales executives reported in the text, the most popular sales incentive is. This is a very broad category of compensation. We provide third-party links as a convenience and for informational purposes only. Your ultimate goal is to control selling expense and provide extra rewards for added results. When the sales effected by the individual salesman cannot be isolated (i.e., when the sales are made collectively by two or more salesmen). salesperson's total pay that is salary should be relatively low? estimate the percentage of all NCAA games in which the winning team scores 84 or -26,000\\ However, a straight salary plan also has its own advantages. You gain authority, prestige and responsibility. Before making any decisions, consider what type of compensation you can offer potential employees and what the stipulations of that compensation plan are. 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. Which of the following is/are most likely to be among them? Companies looking for long-term growth as opposed to short-term sales may opt for this type of compensation as well. Employees who receive it are considered nonexempt by the FLSA, meaning their compensation is regulated. 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. It is often used in direct sales industries and multi-level marketing (MLM) firms that work with independent contractors. The remaining 25% of the sick leave payout Which, if any, of the following sources available will help you in your task? 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. Many millennials, however, are more focused on work-life balance and lifestyle plans, valuing more vacation or the freedom to work from home. If so, an hourly rate with a flexible schedule could be more attractive. How much you spend on salaries often has little to do with your profits. Further, the straight commission motivates poor performers to become more productive since it rewards good performers (Johnston and Marshall, p. 329). If you have less experience or education than other job applicants, taking a salaried . 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. Another advantage of this pay structure is that it helps in attracting more talent . WinningTeamArizonaDukeFloridaStateKansasKentuckyLouisvilleOklahomaStatePurdueStanfordWisconsinPoints90857578716572767776LosingTeamOregonGeorgetownWakeForestColoradoNotreDameTennesseeTexasMichiganStateSouthernCalIllinoisPoints66667057636266706756WinningMargin241952183661020. 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. It assures a steady minimum income to the salesmen. 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. In most companies, the bonus is usually tied to a budgetor other target that has little significance to the employee. 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. How to find funding and capital for your new or growing business. Flexibility has been cited as both an advantage and a disadvantage of this compensation pay plan: A common criticism of combination pay plans is that they. Straight salary method of remuneration is found suitable and is usually adopted under the following circumstances: 1. Working as a contractor definitely has its benefits. \begin{array}{|l|l|c|c|c|c|c|c|c|} \hline You now require the sales force to sell $35,000 worth of product each month to make a commission. Jobs report: Are small business wages keeping up with inflation? 8. When it comes to employee compensation, there isnt a one-size-fits-all solution. While in certain compensation plans, the salespersons receive benefits on accomplishment for specific tasks (e.g. Employers are often hesitant to use this type of compensation, as payroll expenses can be high or unpredictable. 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. Straight Salary Method of Remuneration | Meaning | Suitability | Merits | Demerits, Salesmanship | Meaning | Features | Objectives, Arguments in favor of Social Responsibility of Business, Business Enterprise Meaning | Public | Private | Joint, 10 Most Important functions of a Group Leader, Factors to be Considered in Planning Factory Building, Reasons for Governments Intervention in Private Business, Factors Influencing Salesmen Remuneration Plan, Organizational Factors Responsible for Resistance to Change, Avoidable and Unavoidable causes of Labour Turnover, 5 Important Classification of Business Environment, Under what circumstances a Pvt company be, Purchase Department | Purchase Officer | Qualification, 7 Arguments against Social Responsibilities of Business, Accountlearning | Contents for Management Studies |. Your email address will not be published. Fresh business resources are headed your way! \text{Arizona} & \text{90} & \text{Oregon} & \text{66} & \text{24}\\ \textbf{\textsf{Cash}} & \bm{+} & \textbf{\textsf{Supplies}} & \bm{+} & \textbf{\textsf{Land}}\\ the requirement that expenses be charged and the bills sent directly to the company for payment by the accounting department. \hline Topical articles and news from top pros and Intuit product experts. Advantages to Salesperson: The salesperson feels free from financial uncertainties because of stable income inflow. \text{Kentucky} & \text{71} & \text{Notre Dame} & \text{63} & \text{8}\\ \hline Travel and entertainment costs are a relatively insignificant portion of a salesperson's compensation package. The most commonly used definitions of motivation include these three dimensions: Use the table below. \end{array} , which can vary depending on their states minimum wage. Which one of the following statements regarding global compensation is false? By creating a feeling of security in the minds of the salesmen, it maintains high morale among the sales force. 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. 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. Starting salaries often begin far enough above hourly rates to be able to afford a down payment on a house or car. It is not clear that offering unlimited opportunities to earn higher pay will always be an effective method for continued salesperson motivation. Intuit Inc. does not have any responsibility for updating or revising any information presented herein. 4. Part A: Compare the advantages and disadvantages of straight salary and straight commission compensation plans. He holds a Bachelor of Science in marketing from York College of Pennsylvania. A salesperson who is intrinsically motivated. 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. 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 This is one of the most reliable types of compensation plans. Your salespeople are paid on commission. Chris Joseph writes for websites and online publications, covering business and technology. In most companies, the base pay is determined by the workers job title and job role. From a morale perspective, they can be more satisfied with their work-life balance since no one is dictating it. Under Straight salary method, a salesman is paid remuneration on time basis. 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. Salary plus Commission This is one of the most reliable types of compensation plans. This requires very clearly defined territory outlines and territories that produce enough income to support competitive wages. \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 Running payroll for hourly employees, as opposed to salaried employees, can also be significantly cheaper, making it easier for companies to hit financial goals. If a salesperson earns more commissions than he was paid, he keeps the extra money. The content on MBA Skool has been created for educational & academic purpose only. Recommend a plan to the board of directors. elect to receive regular straight time pay or bank compensatory time at their straight time rate. 2. Salary plus commission plans are often used for sales positions or corporate positions when the company wants to encourage leaders to push for substantial growth and high performance. Employers are also required to pay employees theminimum wage, which can vary depending on their states minimum wage. \\ Operating costs are minimized during slack selling periods. Each increase and decrease in owners equity, except transaction (5)\left(5\right)(5), affects net income. However, a straight salary plan also has its own advantages. Advantages of straight salary. \hline\\ As the name suggests, straight salary compensation is just what you would expect. \\ No bonuses, no commissions, and few, if any, sales incentives. 2. scores more than 90 points. Employees who are self-motivated and hardworking are attracted to this type of work because theres typically no upper limit to the amount in tips or commission they can take home. This is a primary method for compensating independent sales agents. An advantage of the straight salary plan for compensating salespeople is that it: Provides a direct relationship between sales and expenses. 3. . Guaranteed income With a salary plus commission plan, you still earn a base salary regardless of how many products you sell. 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). 4. \end{array} except. When the salesmen are required to create markets for a product. \underline{\underline{2,300}} && \underline{\underline{101,000}} && \underline{\underline{-2,000}} && \underline{\underline{35,000}} && \underline{\underline{-29,000}}\\ \\ \\ \\ Theres something for every HR professional, whether youR Today, creating a sense of purpose is more critical than ever, and we provide employees the means to be successful and feel valued through empowerment, development, feedb HR Drift So, it can be easily understood by all salesmen. There may be multiple rates of bonuses and commission, and payroll managers must have a system in place to keep track of everything. 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. As a sales manager, you liked the advantages that salary plus bonus plans offer yet you were very concerned about some of the following serious problems associated with it: You have decided to change your commission structure to enhance market penetration. , a pet-friendly working environment, etc.). 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. ___________ rewards are those that are given in return for acceptable performance or effort. Once the person has established himself in the area, the company can switch to performance-based salary. But straight commission method distinguishes between efficient and inefficient salesmen. Your positive feeling towards inclusion at work should be synced with your actions on making a change. Commission-only compensation can be valuable for employers because top performers get the most money. 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. 1. __ A mutual fund that purchases But straight commission method does not assure any minimum income to the salesmen. \hline\\ pharmaceutical sales) is the most common type of sales process used. Increase sales and revenues. This pay plan is the: Combination plan (Base salary + performance based commission). 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. +1,500\\ Straight salary plans are not popular with salespeople because: They don't provide strong incentives for extra effort. Design the plan centrally and dictate to local countries. Some terms may not be used. 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. You have a meeting with her to outline the drawback(s) of this type of plan. They receive fixed sums of money at regular intervals (usually each month). The sales teams support each other to reach a common goal. Salesperson compensation has been an issued marked by trial and error to discover the right formula. In this compensation structure, the employee receives a set hourly rate, plus a percentage of their sales. A commission plus bonus plan is particularly suited to a company that uses brokers or independent sales reps. Companies wanting to exert some longer term behavioral control using incentives should make sure that the incentive component is between 15 and 30 percent of total compensation.