Currently editor at The HR Digest Magazine. You have a meeting with her to outline the drawback(s) of this type of plan . Straight salary compensation plans are ideal in industries where the normal structure does not involve (and might even prohibit) direct sales. 2. Sales Management Insight: Sales Commission Plans. scores more than 90 points. salesperson's total pay that is salary should be relatively high? Employees are guaranteed to receive at least base salary to pay the bills, even during a time period when their sales are low. Part B: As a retail sales manager of a large superstore, one of your responsibilities is to train the newly hired employees. You gain authority, prestige and responsibility. except: make it easy enough to allow for a majority of the salesforce to win. And because there is no financial security that kicks in if sales arent made, those who dont earn enough leave or burn out quickly. Recommend a plan to the board of directors. Cost of Administration: The cost of administration of straight salary plan is less than that of straight commission plan. After initial investigations by Holmes Miller, head of the Operations Department, BIA has narrowed the list to 9 cities. However, the$5 million that the business needs for growth cannot be raised within the family. 6. Each increase and decrease in owners equity, except transaction (5)\left(5\right)(5), affects net income. a. 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? \underline{\ \ \ \ \ \ \ \ \ \ \ \ }&& \underline{-3,000} && \underline{\ \ \ \ \ \ \ \ \ \ \ \ }\\ When the salesmen are required to perform some other functions in addition to selling. The most commonly used definitions of motivation include these three dimensions: Use the table below. Your positive feeling towards inclusion at work should be synced with your actions on making a change. The salesperson experiences a high level of security with a salaried sales position. A valid objective in creating commission-based pay programs is to devise a system that encourages salespeople to sell items that maximize profits of the firm. As an hourly employee, once you work over 40 hours in a week, your employer must pay you time and a half for these hours. 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. Estimate the percentage of NCAA games in which the winning team But straight commission method is based on the sales effected by the salesmen and not on the time spent on the job. 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). Its critical for employers to keep this in mind when deciding between different types of compensation packages. Salary programs are most appropriate when it is difficult to relate the efforts of individual salespeople to the size or timing of a sale. 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. Each line designated by a number indicates the effect of a transaction on the equation. These plans often include a straight salary income for training periods or during low seasons. pharmaceutical sales) is the most common type of sales process used. Efficiency: Straight salary method does not distinguish between efficient and inefficient salesmen. Everything you need to prepare for and have a successful holiday season. 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. With ambitious expansion plans, BIA has decided it needs a second service hub on the continent, to complement its large Heathrow (London) repair facility. A common salary-to-commission ratio is 60:40 (60 percent fixed / 40 percent variable). Straight salary method of remuneration is simple. 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. Which of the following is not mentioned in the text as a challenge to sales managers attempting to adjust 6. A fixed dollar amount is paid for each day or week in the field. Paycheck calculator for hourly and salary employees. Efficiency: Straight salary method does not distinguish between efficient and inefficient salesmen. If you choose this plan, you'll pay your reps using a mix of base salary and performance-based rewards. Base salary + sales commission-based pay. \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}}\\ the working capital requirements are lessened with the straight-salary compensation plan. As a staff reporter, she has written hundreds of newspaper and magazine articles, and she is also the author of two published novels. At the end of the pay period, this prepayment is drawn from how much the salesperson earned in commissions. Employers are also required to pay employees theminimum wage, which can vary depending on their states minimum wage. Part B: As a retail sales manager of a large superstore, one of your responsibilities is to train the newly hired employees. The sales teams support each other to reach a common goal. The latest research and insights for Small Businesses from QuickBooks. Katey Maddux is a paddle boarder, music lover, Zumba instructor, and Founder and CEO of. The tools and resources you need to manage your mid-sized business. 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. Employees earning salary plus commission will have higher income tax rates than a self-employed agent. Selling situations that require salespeople to perform special services for customers are more likely to be performed when salespeople are on salary. No assurance is given that the information is comprehensive in its coverage or that it is suitable in dealing with a customers particular situation. In some organizations, selling is a collaborative effort. Assume that the points scored by the winning teams for all NCAA games follow a Disadvantages of straight salary compensation. Spread the word: What you need to know about marketing your small business. Helps management to control salespeople's activities. The latest product innovations and business insights from QuickBooks. 2. Your boss thinks you should implement a salary plus commission plan with an incentive ceiling. 30,000 && 4,000 && 75,000\\ What is salary pay? \\ An employee who agrees to this type of compensation will receive a base salary along with an additional bonus if performance hits or exceeds earning goals. the requirement that expenses be charged and the bills sent directly to the company for payment by the accounting department. An incentive pay cannot work in such a case. The advantages of straight salary compensation include which of the following? It assures a steady minimum income to the salesmen. 8,000 && 101,000\\ 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. Control over Salesmen: Straight salary plan gives the management sufficient control over the salesmen. They don't want to worry about the inconsistencies associated with a commission-based pay. 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. Corporate industries and IT sales, for example, often use this type of compensation when creating bonus plans. Fresh business resources are headed your way! Some of these jobs also have flexible schedules, which can be beneficial to employees. && +1,500\\ In a profit margin/revenue-based (PMR) plan, employees are compensated based on the profitability of the company. salesforce include all of the following except. As the Vice President of Sales for a new startup company, you decide to hire and train your own field sales force. Different companies offer different compensation plans to their sales representatives- the straight salary plan being one of the simplest. This requires very clearly defined territory outlines and territories that produce enough income to support competitive wages. Increase sales and revenues. A sample of 10 NCAA college basketball game scores provided the following data (USA If he earns less in commissions, he must pay the remainder back to the company. Person A pays over $18,000 in tax and receives a net income of around $62,000. 5. A straight salary plan can be advantageous in certain situations. \text{Kansas} & \text{78} & \text{Colorado} & \text{57} & \text{21}\\ Employees need not be scheduled for the same number of hours each week. 5. Under this plan, companies compensate its employees entirely on the profits made by the business. 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. Security and collaboration: The straight salary plan provides a more stress-free working environment for the salespersons. Which of the following statements regarding sales contests is true? . \end{array} \\ 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. But straight commission method does not assure any minimum income to the salesmen. 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. 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. \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 . their compensation plans to recognize team performance? 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? Sadly, employers are usually reluctant to offer a residual commission deal to employees. What change in the firm's salesforce reward system might be in response to customer's needs? \underline{\underline{14,800}} && \underline{\underline{\ \ \ 2,500}} && \underline{\underline{90,000}} \\ \\ \\ \\ When the salesmen are required to create markets for a product. The goal of the compensation package is to reward employees for their efforts without putting the firm's profitability in jeopardy. 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. Payroll essentials you need to run your business. No bonuses, no commissions, and few, if any, sales 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. Which of the following is not a guideline for optimizing the use of sales contests? Design the plan centrally and dictate to local countries. 2. Employers are often hesitant to use this type of compensation, as payroll expenses can be high or unpredictable. Everything you need to start accepting payments for your business. \text{Florida State} & \text{75} & \text{Wake Forest} & \text{70} & \text{5}\\ Each time a commission check is cut you have the satisfaction of knowing that it's due to something positive. Salespeople should compete in teams with each member of the team making a contribution to the group's total goal. Tax basics you need to stay compliant and run your business. 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 following except. The commission can include (but is not limited to) a percentage of personal sales, a percentage of team sales, bonuses, or overtime pay. By creating a feeling of security in the minds of the salesmen, it maintains high morale among the sales force. It has lower turnover rates. In territory value compensation (TVC), payment is calculated based on the territory volume at the end of a period. \text{ } & \text{ } & \text{52-Week} & \text{52-Week} & \text{ } & \text{ } & \text{Sales} & \text{ } & \text{ }\\ Based on this analysis you know that a larger percentage of the salesperson's pay should be _____________ as compared to ______________ for the best results. Provide equal pay to all employees at the same level. Are they just trying to pay their way through college? The straight salary plan is one of the simplest compensation plans that companies offer to their employees, particularly sales representatives. Jobs report: Are small business wages keeping up with inflation? In this compensation structure, the employee receives a set hourly rate, plus a percentage of their sales. One advantage of hourly pay is your eligibility for overtime. Further, the straight commission motivates poor performers to become more productive since it rewards good performers (Johnston and Marshall, p. 329). 1. 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. The main differences between the straight salary method and straight commission method are explained below: Straight Salary Method vs Straight commission Method. 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. follow-up and service. 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 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. She helps HR professionals identify issues with their talent management and employment law. 2. It is a very useful system of remunerating newly-appointed salesmen who are new to the job. Which of the following is not a form of nonfinancial compensation? When there are considerable seasonal variations in the sales made by the salesmen. A salesperson who is extrinsically motivated, is motivated by the rewards that the job provides, Reward system management involves the selection and utilization of organizational rewards to. This means you can always keep earning more money if you're willing to put in some extra hours of work. Compensation plans, once set, do not need to be evaluated to determine if it will negatively affect salespeople's wages and total costs. Provide a mix of both compensation and noncompensation rewards comparable to other firms. You also decide to pay your salespeople with the most common type of compensation plan among companies. But when that same group opened up about things that weren't essential to the negotiation, 59 percent were able to strike a deal. It is critical that companies using this type of system have good metrics in place for tracking sales so they can fairly and accurately calculate commissions. Murray Kiser operates his own catering service. \end{array} 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). , holiday pay, and parental leave) to lifestyle benefits (like flexible working hours. Employees may be confused as to how pay is calculated, so transparency is important. that they offer little financial incentive to perform past a merely acceptable level. 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. When the salesmen are new to the job (i.e., for remunerating the newly appointed salesmen.). A salesperson who is intrinsically motivated. According to your text, what would you do next? Straight salary plans are not popular with salespeople because: They don't provide strong incentives for extra effort. Plan B is to issue 100,000 shares of common stock. Its worth noting that inconsistent working hours can also hurt employees who may be counting on a consistent income. -15,000 &&&& +15,000\\ \text{Bal. Security and collaboration: The straight salary plan provides a more stress-free working environment for the salespersons. These can range from monetary benefits (like extra. 5. Today, January 26, 2004). 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. I thought wed follow up on that post by exploring the six different types of compensation plans in depth. Advantages. On a straight salary, they will be paid this regardless of how many deals they close. 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 straight commission method distinguishes between efficient and inefficient salesmen. 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. It has been reviewed & published by the MBA Skool Team. \\ 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. 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 companys income tax rate is 35%. Intuit Inc. does not have any responsibility for updating or revising any information presented herein. Employers have to think about who their target employee is and what that employee is looking for. Which of the following is not a factor to be considered when developing a commission-only plan? The independent contractor category is broad and includes everything from lawn services to sales to doctors and lawyers. 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). ii) There will be no surprise of payroll expenses. This is a very important distinction, as it determines who pays the taxes (the worker, not the employer) and to what standard an employer is held. Expert Answer. 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. Your paycheck is based on a specific percentage of the sales that you are able to generate. total sales. Commission for independent sales reps can range from 5% to 40%, with the average ranging from 20% to 30% of gross margins or 7% to 15% of gross sales. &&\textbf{\textsf{Assets}}\\ 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. 6. Laws differ by state, so do your research before making any decisions. 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. 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. Of course, there are exceptions to every rule. Accounting and bookkeeping basics you need to run and grow your business. \end{array} Companies are increasing incentives for foreign-based employment. The workplace catchphrase you need to know. Lavish formal recognition programs can provide all of the following benefits to a salesforce except. But straight commission method distinguishes between efficient and inefficient salesmen. An advantage of the straight salary plan for compensating salespeople is that it: Provides a direct relationship between sales and expenses. A per diem expense plan pays the salesperson for all reported expenses. 6. 5. Its common for remote employees to revolve their entire life aro HR-related shows on Netflix are a great way to unwind and reflect on all that goes on in the workplace. Your base pay provides a steady income during seasons where commission may be more difficult to earn. Here Are the Pros of Straight Commission. This compensation type tends to attract fewer people since there is no secure base pay. \hline If your family does not have a complete home inventory, encourage your parents or other adults with whom you live to create one. , a pet-friendly working environment, etc.). He holds a Bachelor of Science in marketing from York College of Pennsylvania. Plan A is to borrow at 6%. Salespeople may also be paid on a straight salary basis in which there is no opportunity to earn incentives. , which can vary depending on their states minimum wage. Employees who receive it are considered nonexempt by the FLSA, meaning their compensation is regulated. Some disadvantages of straight salary compensation may include reduced retention and high turnover if employees dont see opportunities to increase their pay. So, it can be easily understood by all salesmen. Good salespeople can continue to receive residual commission ever after they leave the company through negotiation. Each is then rated on 12 factors, as shown in the table below. Provide an opinion of which type of compensation plan you would prefer as a professional salesperson. A straight salary can greatly benefit someone who is transferring to a new territory. Hourly plus commission compensation does have its disadvantages as well. Which of the following is not an advantage of the . Many appreciate the fallback stability of the base salary paired with performance incentives. Contractors can determine their own fees, working hours, employees, etc. \end{array} Leadership Insights Subscribe to our newsletter and stay updated on the latest HR news and trends. 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 |. Wage caps are used by some firms to prevent salespeople from making too much money. 1. O True O False. This can lead to high turnover, a need for more recruitment resources, and higher training costsall of which cuts into potential bottom-line savings. The advantages of paying employees a straight commission include the fact that it provides direct motivation to sales representatives to sell more products and services so they can earn more. -26,000\\ A change from straight commission to straight salary. An employee who works only on salary has little external motivation to go above and beyond. 3. Due to the complexity and compliance issues involved, very few companies offer equity or stock. Summary financial data for February are presented in equation form as follows. If you have less experience or education than other job applicants, taking a salaried . PMR is common in sales and is good for startups with low liquidity. Hourly roles can often be perceived as less valuable or easier to replace. Bal.1.2.3.4.5.6.7.Bal.AssetsCash+Supplies+Land30,0004,00075,000+35,00026,00015,000+15,000+1,5002,0007,2003,00014,8002,50090,000==Liabilities+OwnersEquityAccountsMurrayKiser,MurrayKiser,FeesPayable+CapitalDrawing+EarnedExpenses8,000101,00035,00026,000+1,5002,0007,2003,0002,300101,0002,00035,00029,000\begin{array}{lccl} 1. It can also be beneficial if a firm is entering a new market or location. In addition, employers also enjoy the flexibility of being able to increase or decrease employee hours seasonally or to reflect sales growth.a. Sparks holds a Bachelor of Arts in business. It is easy to calculate. 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. How much investment capital should you accept? Employers may use this type of compensation to keep payroll expenses low while still motivating employees to perform. Those who sell below $35,000 will not receive commissions. You can tweak the budget annually by deciding whether the business has flourished enough to offer merit raises. In this situation, employees only receive their bonus if the district, division, or even continent hits its sales goals. Nevertheless, salary compensation plans are appropriate in a number of situations. You can tweak the budget annually by deciding whether the business has flourished enough to offer merit raises. The tools and resources you need to take your business to the next level. https://quickbooks.intuit.com/r/payroll/employee-compensation-benefits-guide/. 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 Following are the advantages of the straight commission plan: Pay relates directly to performance and results achieved. &&&&&&&& -26,000\\ 4. ___________ rewards are those that are given in return for acceptable performance or effort. 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. The introduction of HR technology has revolutionized the way HR departments operate. 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.
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