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. The most commonly used definitions of motivation include these three dimensions: Use the table below. The advantages of straight salary compensation include which of the following? 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. The Advantages & Disadvantages of Salary - Career Trend So, it can be easily understood by all salesmen. 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. . If its part of their contract, salespeople can continue to receive commissions even after theyve left the company. 1. The tools and resources you need to run your business successfully. 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. issue a press release detailing the company's changes. The companys income tax rate is 35%. \\ 6. , a pet-friendly working environment, etc.). Per the IRS definition, the contractor is in control of how the work gets done, so there is a lot of freedom. 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 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. Among the drawback(s) you will discuss include: You have read a "want ad" in the latest edition of Marketing News. For each frequency distribution, suggest "nice" bins. 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 The amount of mental and physical effort put forth by the salesperson is referring to, The salesperson's choice to expend effort over a period of time, especially when faced with adverse, The motivation task is incomplete unless salespeople's efforts are. 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 directors, who strongly wish to retain family control of the company, must consider issuing securities to outsiders. Straight salary plans are not popular with salespeople because: They don't provide strong incentives for extra effort. If so, an hourly rate with a flexible schedule could be more attractive. Relevant resources to help start, run, and grow your business. Provide an opinion of which type of compensation plan you would prefer as a professional salesperson. Some of this is likely due to a generational shift in what employees are really looking for. Straight salary method of remuneration is simple. \text{Stanford} & \text{77} & \text{Southern Cal} & \text{67} & \text{10}\\ a. salaries are a fixed cost to the firm and thus tend to decrease proportionally as sales increase. 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. compensation plans are used as a way to motivate employees. 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. Some disadvantages of straight salary compensation may include reduced retention and high turnover if employees dont see opportunities to increase their pay. Quizzes test your expertise in business and Skill tests evaluate your management traits. 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. Which of the following statements regarding changes in the reward system is false? In fields that typically involve commissions, the outside sales exemption and the retail sales exemption may also apply. Long ago, we wrote about the importance of a compensation plan in an organization. \text{Bal. Provide an opinion of which type of compensation plan you would prefer as a professional salesperson. These plans often include a straight salary income for training periods or during low seasons. salesforce include all of the following except. 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. An incentive pay cannot work in such a case. 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). It does not provide any incentive for hard work. 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. Companies that pay their employees using PMR-based compensation will want to offer additional benefits to make up for their potentially low liquidity. In addition, employers also enjoy the flexibility of being able to increase or decrease employee hours seasonally or to reflect sales growth.a. WinningTeamArizonaDukeFloridaStateKansasKentuckyLouisvilleOklahomaStatePurdueStanfordWisconsinPoints90857578716572767776LosingTeamOregonGeorgetownWakeForestColoradoNotreDameTennesseeTexasMichiganStateSouthernCalIllinoisPoints66667057636266706756WinningMargin241952183661020. Formal recognition programs have a better chance of success if sales managers do all of the following \text{Duke} & \text{85} & \text{Georgetown} & \text{66} & \text{19}\\ The salesperson experiences a high level of security with a salaried sales position. Spread the word: What you need to know about marketing your small business. From a payroll standpoint, this type of compensation is harder to administer. Companies are increasing incentives for foreign-based employment. 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. Salespeople can be compensated in a number of different ways. international stocks and bonds that they offer little financial incentive to perform past a merely acceptable level. Because her income is stable, planning and managing her personal finances is easier. ___________ rewards are those that are given in return for acceptable performance or effort. With this type of structure, you'd pay your sales people a straightalbeit competitivesalary like all of your other employees, and nothing else. Applicable laws may vary by state or locality. A per diem expense plan pays the salesperson for all reported expenses. \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{-3,000}\\ Under this system, rewards are not matched with efforts. \text{Winning Team} & \text{Points} & \text{Losing Team} & \text{Points} & \text{Winning Margin}\\ Your national sales force is divided into eight regions, though the Mid-Atlantic region is currently understaffed (sales volume there has always been low). a. 3. 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. 1. In some organizations, selling is a collaborative effort. Before making any decisions, consider what type of compensation you can offer potential employees and what the stipulations of that compensation plan are. If you choose this plan, you'll pay your reps using a mix of base salary and performance-based rewards. The most serious disadvantage of a straight-salary compensation plan is. The location selection is critical, and with the potential for 4,000 new skilled blue-collar jobs on the line, virtually every city in western Europe is actively bidding for BIA's business. Salaried employees receive an equal portion of their annual compensation every week. Advantages. 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. 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. Last week's MPG for 35 student vehicles (xmin=9.4,xmax=38.7)\left(x_{\min }=9.4, x_{\max }=38.7\right)(xmin=9.4,xmax=38.7). provide salespeople with trips and other rewards. Are benefits included in the definition? Part B: As a retail sales manager of a large superstore, one of your responsibilities is to train the newly hired employees. If your family does not have a complete home inventory, encourage your parents or other adults with whom you live to create one. 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. Total sales for the territory are then split among the sales reps in that territory. Part A: Compare the advantages and disadvantages of straight salary and straight commission compensation plans. 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. \textbf{\textsf{Cash}} & \bm{+} & \textbf{\textsf{Supplies}} & \bm{+} & \textbf{\textsf{Land}}\\ Advantages And Disadvantages Of A Straight Commission 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. 4. This article has been researched & authored by the Business Concepts Team. Advantages to Salesperson: The salesperson feels free from financial uncertainties because of stable income inflow. One benefit, from the employers perspective, is the company only pays commissions when the top line improves, so its beneficial from a profitability standpoint. 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. So, it does not encourage salesmen to do hard work. For employers, hourly employees can be a good option for work that fluctuates seasonally. Solved QUESTION 17 An advantage of using a straight salary - Chegg 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. There may be multiple rates of bonuses and commission, and payroll managers must have a system in place to keep track of everything. Which of the following is not an advantage of combination plans? Expert Answer. Salesmen Reward: Under the straight salary method, salesmens rewards are not matched with their efforts. But when that same group opened up about things that weren't essential to the negotiation, 59 percent were able to strike a deal. estimate the percentage of all NCAA games in which the winning team scores 84 or 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 \end{array} 11. The content on MBA Skool has been created for educational & academic purpose only. Advantages of Straight Salary Method 1. I thought wed follow up on that post by exploring the six different types of compensation plans in depth. According to a survey of sales executives reported in the text, the most popular sales incentive is. In case the salesperson shows high sales performance, the firm increases its 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. A straight salary can also benefit an experienced salesperson who is transferring to a new territory where the company and its products may be completely unknown. \hline\\ Which of the following is not a guideline recommended in the management of motivation? No two compensation plans are alike. \underline{\underline{2,300}} && \underline{\underline{101,000}} && \underline{\underline{-2,000}} && \underline{\underline{35,000}} && \underline{\underline{-29,000}}\\ \\ \\ \\ It is a highly attractive model, especially to start-ups who are seeking to penetrate a specific territory. Accordingly, the information provided should not be relied upon as a substitute for independent research. nonfinancial reward: All of the following are steps suggested for facilitating a sense of accomplishment in the salesforce 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. bell-shaped distribution. 2. 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. The importance of the salesperson's personal skills in making sales is slight. Disadvantages of straight salary compensation. 8 Pros and Cons of Straight Commission - BrandonGaille.com Today, January 26, 2004). Sparks holds a Bachelor of Arts in business. 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). }\\ 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. Is it just monetary? 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). A common salary-to-commission ratio is 60:40 (60 percent fixed / 40 percent variable). A major objective of a well-designed compensation package is to: 1. Once the person has established himself in the area, the company can switch to performance-based salary. 8. 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. 4. Therefore, employers are not required to pay overtime if employees work more than 40 hours per week. elect to receive regular straight time pay or bank compensatory time at their straight time rate. 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. Helps management to control salespeople's activities. Payroll essentials you need to run your business. How much you spend on salaries often has little to do with your profits. \end{array} \\ Employees may be confused as to how pay is calculated, so transparency is important. By creating a feeling of security in the minds of the salesmen, it maintains high morale among the sales force. Chapter 12 Flashcards | Quizlet Compare the advantages and disadvantages of straight salary and As it assures a certain minimum income (the living wage) to the salesmen regularly, it creates a feeling of security in the minds of the salesmen. \text{Oklahoma State} & \text{72} & \text{Texas} & \text{66} & \text{6}\\ 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. Your email address will not be published. Additionally, they have full control over benefits like insurance and retirement management. She loves training, creating processes, and introducing her clientele to new apps and technology. 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. 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. Fresh business resources are headed your way! Each is then rated on 12 factors, as shown in the table below. \bm{=}\\ \bm{=} \\ \\ \\ \\ \\ \\ \\ \\ \\ \\ \\ \\ 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. 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. That means, there will not be much bad debts. On the other hand, under the straight commission method, salesmens rewards are matched with their efforts. What is important here is building a close relationship with the retailer and satisfying the customers needs. 7. 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. Person A pays over $18,000 in tax and receives a net income of around $62,000. \text{Louisville} & \text{65} & \text{Tennessee} & \text{62} & \text{3}\\ \text{Bal.} Terms and conditions, features, support, pricing, and service options subject to change without notice. Under Straight salary method, a salesman is paid remuneration on time basis. 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. channeled in directions consistent with the overall strategic role of the salesforce within the firm. 11 Main Types of Sales Compensation Plans (With Examples) 8,000 && 101,000\\ Jobs report: Are small business wages keeping up with inflation? 6 Different Types of Compensation Plans and Benefits - The HR Digest It is usually easy to design pay plans that fully meet the goals and needs of the firm, customers, and salespeople. Tax basics you need to stay compliant and run your business. Base salary + sales commission-based pay. Whos using straight hourly compensation? \text{Florida State} & \text{75} & \text{Wake Forest} & \text{70} & \text{5}\\ Under this plan, companies compensate its employees entirely on the profits made by the business. They receive fixed sums of money at regular intervals (usually each month). This is one of the most reliable types of compensation plans. 6. 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. Straight Salary Straight salary sales compensation plans aren't very common, but they do have a place in some organizations. Straight salary compensation plans are ideal in industries where the normal structure does not involve (and might even prohibit) direct sales. She loves training, creating processes, and introducing her clientele to new apps and technology. It assures a steady minimum income to the salesmen. | Priyansha tweets at. 4. Straight salary refers to the basic salaries and wage given to the worker. Part A: Compare the advantages and disadvantages of straight salary and straight commission compensation plans. Although quite popular, salary compensation plans have some disadvantages. It is often used in direct sales industries and multi-level marketing (MLM) firms that work with independent contractors. \text{Symbol} & \text{Stock} & \text{High} & \text{Low} & \text{Last} & \text{Change} & \text{Volume} & \text{High} & \text{Low}\\ \hline These have a significantly higher (pre-tax) contribution limit than company IRAs. Additional information and exceptions may apply. Straight salary method of remuneration is simple. However, a straight salary plan also has its own advantages. Straight salary method of remuneration Meaning, Suitability, Advantages, Disadvantages. salesperson's total pay that is salary should be relatively high? Celebrating the stories and successes of real small business owners. The earnings of a person who is working as an independent contractor are subject to self-employment tax.. Employers are also required to pay employees the. Murray Kiser operates his own catering service. Copyright 2023 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. All of the above. \textbf{\textsf{Liabilities}} & \bm{+} &&&\textbf{\textsf{Owner's Equity}}\\ Employees need not be scheduled for the same number of hours each week. 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. Before making any decisions, consider what type of compensation you can offer potential employees and what the stipulations of that compensation plan are. O True O False. +35,000\\ 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. You can tweak the budget annually by deciding whether the business has flourished enough to offer merit raises. 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. b. Ages of 50 airplane passengers (xmin=12,xmax=85)\left(x_{\min }=12, x_{\max }=85\right)(xmin=12,xmax=85). We provide third-party links as a convenience and for informational purposes only. While there are no real downsides to this type of plan, organizations should be mindful of several things: This requires a solution that benefits both employee and employer. \begin{array}{l} 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). \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 Security and collaboration: The straight salary plan provides a more stress-free working environment for the salespersons. Advantage: Straight-Forward Budgeting 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. manner. The latest product innovations and business insights from QuickBooks. What are the most popular types of compensation packages? However, a straight salary plan also has its own advantages. \begin{array} {rcrcrcrcr} Sales Costs: Under the straight salary method, sales costs are not matched with the sales. Companies looking for a simple or consistent payroll solution without any surprise payroll expenses will likely build their compensation offering around straight salaries. A sample of 10 NCAA college basketball game scores provided the following data (USA Readers should verify statements before relying on them. Some terms may not be used. Dana Sparks has been a professional writer since 1990. ____________ is the easiest plan to administer and budget for. Salesmen have the greatest. At the end of the pay period, this prepayment is drawn from how much the salesperson earned in commissions. Q&A With Jane This type of compensation plan is every salespersons dream. Katey Maddux is a paddle boarder, music lover, Zumba instructor, and Founder and CEO ofMillennial Accounting, LLC in Miami, Florida. Browse the definition and meaning of more similar terms. Summary financial data for February are presented in equation form as follows. \hline Katey Maddux is a paddle boarder, music lover, Zumba instructor, and Founder and CEO of. 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. 1. Offer your support. For post-Depression-era baby boomers, the security of a steady salary is important. 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). Perhaps the most serious shortcoming of straight-commission plans is that. When it comes to employee compensation, there isnt a one-size-fits-all solution. Companies looking for long-term growth as opposed to short-term sales may opt for this type of compensation as well. https://quickbooks.intuit.com/r/payroll/employee-compensation-benefits-guide/. It has been reviewed & published by the MBA Skool Team. Sales Management Ch 12 Flashcards | Quizlet Straight salary compensation is typically used in industries where: Missionary selling (i.e. It is not clear that offering unlimited opportunities to earn higher pay will always be an effective method for continued salesperson motivation. Salary plus Commission This is one of the most reliable types of compensation plans. Finding balance and setting boundaries at work. Straight salary method of remuneration is found suitable and is usually adopted under the following circumstances: 1. 4. Happy hours are a great way to connect with colleagues, share experiences, and have some fun together. In this situation, employers have to pay overtime, despite the employee being salaried. The ATO considers this $80,000 taxable income. The compensation is usually calculated by finding out territory volume. Which of the following is not one of the desired outcomes of an optimal reward system? Increase sales and revenues. Whos using straight salary compensation?