virtually automatic, this form of commission rate would be appropriate: An example of a selling situation requiring a commission split would be. In this, salespeople continue to receive a commission as long as their accounts are generating revenue for the employer. Payroll essentials you need to run your business. Although quite popular, salary compensation plans have some disadvantages. Once the person has established himself in the area, the company can switch to performance-based salary. Being Paid on Salary: Pros and Cons | Indeed.com It provides stability of earnings without wide fluctuations. Among the drawback(s) you will discuss include: You have read a "want ad" in the latest edition of Marketing News. Security and collaboration: The straight salary plan provides a more stress-free working environment for the salespersons. In this sense, compensation is a counterbalance. An advantage of the straight salary plan for compensating salespeople is that it: Provides a direct relationship between sales and expenses. It assures a steady minimum income to the salesmen. Once the person has established himself in the area, the company can switch to performance-based salary. \textbf{\textsf{Accounts}} && \textbf{\textsf{Murray Kiser,}} && \textbf{\textsf{Murray Kiser,}} && \textbf{\textsf{Fees}} \hspace{6pt}\\ Which of the following is not an advantage of the commission compensation plan? A per diem expense plan pays the salesperson for all reported expenses. 1. Companies looking for a simple or consistent payroll solution without any surprise payroll expenses will likely build their compensation offering around straight salaries. Which of the following is not mentioned in the text as a challenge to sales managers attempting to adjust Which of the following is not true regarding the design of a global salesforce compensation system? Companies often feel they can justify a lower salary or rate if they include a more robust benefits package. Once the salesperson has established himself in the area, the company can then switch to a performance-based compensation plan if desired. Salesmen Reward: Under the straight salary method, salesmens rewards are not matched with their efforts. Is good for a financially weak company. Running payroll for hourly employees, as opposed to salaried employees, can also be significantly cheaper, making it easier for companies to hit financial goals. We dont want you to miss anything. 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. 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. Everything you need to know about managing and retaining employees. Salary Plus Commission: Advantages and Disadvantages Based on this information, which salesperson compensation plan would work best? In most companies, the base pay is determined by the workers job title and job role. the following except. A major objective of a well-designed compensation package is to: 1. You think you have finally selected a compensation method and wage level that meets your boss's requirements. Profit margin is one of the most popular types of compensation used by start-up companies. 2. 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. Your positive feeling towards inclusion at work should be synced with your actions on making a change. These plans often include a straight salary income for training periods or during low seasons. Because her income is stable, planning and managing her personal finances is easier. ____________ is the easiest plan to administer and budget for. The main differences between the straight salary method and straight commission method are explained below: Straight Salary Method vs Straight commission Method. Formal recognition programs have a better chance of success if sales managers do all of the following It does not distinguish between efficient and inefficient salesmen, as the same remuneration is paid to both efficient and inefficient salesmen. 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. 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. Expert Answer. However, the$5 million that the business needs for growth cannot be raised within the family. Such positions might include retail sales, restaurant employees, barbers and cosmetologists, and customer service reps. 2. 1. Hourly plus commission compensation does have its disadvantages as well. 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. 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. Are benefits included in the definition? \end{array} For post-Depression-era baby boomers, the security of a steady salary is important. On the other hand, under the straight commission method, salesmens rewards are matched with their efforts. more points. \text{Florida State} & \text{75} & \text{Wake Forest} & \text{70} & \text{5}\\ Straight salary compensation is typically used in industries where: Missionary selling (i.e. 30,000 && 4,000 && 75,000\\ 5. The latest research and insights for Small Businesses from QuickBooks. Employees who receive it are considered nonexempt by the FLSA, meaning their compensation is regulated. \\ 8,000 && 101,000\\ 4. Which of the following is not a factor to be considered when developing a commission-only plan? Straight Salary Plan - Meaning & Definition | MBA Skool Advantages of salary plus commission The benefits of a salary plus commission plan include: 1. Employers who pay by the hour should focus on increasing morale and showing employees they are valued in order to avoid turnover. She loves training, creating processes, and introducing her clientele to new apps and technology. Tax and bookkeeping basics you need to run and grow your business. 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. According to your text, what would you do next? 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 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. A fixed dollar amount is paid for each day or week in the field. Browse the definition and meaning of more similar terms. \hline Some of these jobs also have flexible schedules, which can be beneficial to employees. Currently editor at The HR Digest Magazine. Which of the following is not a guideline recommended in the management of motivation? Your boss thinks you should implement a salary plus commission plan with an incentive ceiling. 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. In this compensation structure, the employee receives a set hourly rate, plus a percentage of their sales. Many millennials, however, are more focused on work-life balance and lifestyle plans, valuing more vacation or the freedom to work from home. 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. Hence, this concludes the definition of Straight Salary Plan along with its overview. That means, there will not be much bad debts. The Advantages & Disadvantages of Salary | Work - Chron.com This form of nonfinancial reward is generally considered to be more desirable to younger salespeople 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. Today, January 26, 2004). Employers are also required to pay employees theminimum wage, which can vary depending on their states minimum wage. Solved An advantage of the straight salary plan for | Chegg.com Sales Commission & Compensation Plans: The Key to a Star - Pipedrive 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. Sales force compensation should not only meet the goals of the firm, but should also communicate to the sales force what is important. 8. The Science Behind Salary Negotiations: A Game Plan for Employers That elect to receive regular straight time pay or bank compensatory time at their straight time rate. Another advantage of this pay structure is that it helps in attracting more talent . +35,000\\ This system safeguards the interests of the consumers also. Advantages to Salesperson: The salesperson feels free from financial uncertainties because of stable income inflow. \bm{=}\\ \bm{=} \\ \\ \\ \\ \\ \\ \\ \\ \\ \\ \\ \\ 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. 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? It tends to only attract less experienced staff who want a "safe" pay structure. But when that same group opened up about things that weren't essential to the negotiation, 59 percent were able to strike a deal. 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. 5 Park N Fly presently has net income of $3.5 million and 1 million shares of common stock outstanding. Fringe Benefits and Salary Plan based upon the employee's rate of pay immediately preceding retirement. A job like this is more likely to have flexible working hours or the ability to work from home. Employees earning salary plus commission will have higher income tax rates than a self-employed agent. If an employee is required to work on a holid ay as a regularly scheduled work day, . There is no additional performance or sales-based income added to the employees compensation. tend to produce too many salesforce objectives which are of the crisis-resolution variety. Minimum Income: Straight salary method assures a minimum income to the salesmen. The workplace catchphrase you need to know. Starting salaries often begin far enough above hourly rates to be able to afford a down payment on a house or car. A straight salary can greatly benefit someone who is transferring to a new territory. 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. How much investment capital should you accept? Your salespeople are paid on commission. Which of the following accurately describe per diem expense plans? Offer your support. When the work done by the salesmen cannot be measured satisfactorily. Some of this is likely due to a generational shift in what employees are really looking for. 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? 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. If your family does not have a complete home inventory, encourage your parents or other adults with whom you live to create one. 6. Sales jobs consisting primarily of Account Management involve a greater account servicing component and are therefore better suited to a primarily __________. It assures a steady minimum income to the salesmen. As a staff reporter, she has written hundreds of newspaper and magazine articles, and she is also the author of two published novels. All of the following are typical reimbursable expense items except. If he earns less in commissions, he must pay the remainder back to the company. But straight commission method distinguishes between efficient and inefficient salesmen. The company sets a minimum and maximum range that can increase, decrease or remain the same, depending on the workers performance. For example, consider a salesman who frequents various retail stores or department stores to check inventory or take orders for replenishment. Different companies offer different compensation plans to their sales representatives- the straight salary plan being one of the simplest. The different types of compensation include . 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. 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 \begin{array}{|l|l|c|c|c|c|c|c|c|} \hline Recommend a plan to the board of directors. -2,000\\ Similar to straight salary, this compensation structure offers employees a guaranteed base income annually, but also offers performance-based income in addition, unlike straight salary. Find articles, video tutorials, and more. Which of the following is not one of the desired outcomes of an optimal reward system? 2. MBA Skool is a Knowledge Resource for Management Students, Aspirants & Professionals. 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 It has lower turnover rates. Get the definitive guide to employee compensation packages and benefits in this comprehensive QuickBooks resource written by payroll expert Katey Maddux. Straight Salary Straight salary sales compensation plans aren't very common, but they do have a place in some organizations. Murray Kiser operates his own catering service. international stocks and bonds It is a highly attractive model, especially to start-ups who are seeking to penetrate a specific territory. __ A mutual fund that purchases \end{array} 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. Part B: As a retail sales manager of a large superstore, one of your responsibilities is to train the newly hired employees. Your email address will not be published. a supportive sales management leadership style. Corporate industries and IT sales, for example, often use this type of compensation when creating bonus plans. \begin{array} {c} Happy hours are a great way to connect with colleagues, share experiences, and have some fun together. 1. 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. This offers the security of a salary with the greater earning potential of commission. Wage caps are used by some firms to prevent salespeople from making too much money. Which of the following is not an advantage of combination plans? Under this method, there is no direct relationship between sales revenue and selling costs. Plan B is to issue 100,000 shares of common stock. The importance of the salesperson's personal skills in making sales is considerable. This means you can always keep earning more money if you're willing to put in some extra hours of work. Which of the following is not a form of nonfinancial compensation? Accounting and bookkeeping basics you need to run and grow your business. As the name suggests, straight salary compensation is just what you would expect. 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. The ATO considers this $80,000 taxable income. \hline For a new salesperson, a salary provides a steady income during the training period when he is still learning the sales methods and products of the company. You were given the mandate by your boss to change the compensation plan so that the total salesperson compensation (salary plus commission) is lowered. compensation plans are used as a way to motivate employees. This leaves the salespersons with no opportunity for extra money or incentives. In most companies, the bonus is usually tied to a budgetor other target that has little significance to the employee. 8. 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. , which can vary depending on their states minimum wage. The complete guide to employee compensation and benefits - QuickBooks Control over Salesmen: Straight salary plan gives the management sufficient control over the salesmen. This type of compensation is well-suited for employees who work in a team-based culture. 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. Applicable laws may vary by state or locality. PMR-based compensation often encourages loyalty among employees, but it will also require long-term incentives to retain talent. 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. Straight salary refers to the basic salaries and wage given to the worker. According to the Customer-Product Matrix, sales positions that focus primarily on new business development require a greater proportion of salary than incentive. Straight salary plans are not popular with salespeople because: They don't provide strong incentives for extra effort. The goal of the compensation package is to reward employees for their efforts without putting the firm's profitability in jeopardy. Such a plan is quite common in the services industry as well as in the industrial goods sector. Its critical for employers to keep this in mind when deciding between different types of compensation packages. \underline{\underline{14,800}} && \underline{\underline{\ \ \ 2,500}} && \underline{\underline{90,000}} \\ \\ \\ \\ 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. TheDepartment of Laborhas very specific requirements for classifying and paying employees. 7. When the salesmen are required to perform some other functions in addition to selling. Part A: Compare the advantages and disadvantages of straight salary and straight commission compensation plans. 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. One benefit, from the employers perspective, is the company only pays commissions when the top line improves, so its beneficial from a profitability standpoint. 4. Changing from a straight salary plan to a combination salary plus commission plan provides a number of benefits. Resources to help you fund your small business. Katey Maddux is a paddle boarder, music lover, Zumba instructor, and Founder and CEO of. Summary financial data for February are presented in equation form as follows. 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Part A: Compare the advantages and disadvantages of straight salary and straight commission compensation plans. \text{Symbol} & \text{Stock} & \text{High} & \text{Low} & \text{Last} & \text{Change} & \text{Volume} & \text{High} & \text{Low}\\ \hline Due to the complexity and compliance issues involved, very few companies offer equity or stock. Solved QUESTION 17 An advantage of using a straight salary - Chegg