Such a plan is quite common in the services industry as well as in the industrial goods sector. Another advantage of this pay structure is that it helps in attracting more talent . Sparks holds a Bachelor of Arts in business. This leaves the salespersons with no opportunity for extra money or incentives. Guaranteed income With a salary plus commission plan, you still earn a base salary regardless of how many products you sell. 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 It can also be beneficial if a firm is entering a new market or location. 2. Some people won't work for anything other than a fixed salary. Employers have to think about who their target employee is and what that employee is looking for. In addition, employers also enjoy the flexibility of being able to increase or decrease employee hours seasonally or to reflect sales growth.a. Which of the following is not a form of nonfinancial compensation? estimate the percentage of all NCAA games in which the winning team scores 84 or 6. In the same vein, contractors are not subject to withholding and are therefore responsible for their own taxes (the self-employment tax). 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. Salaried employees receive an equal portion of their annual compensation every week. 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. \\ The most common exemptions are executive, administrative, and professional exemptions. Get help with QuickBooks. How much you spend on salaries often has little to do with your profits. 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. This article has been researched & authored by the Business Concepts Team. plan is recommended: Advantages of straight-salary compensation plans include all of the following except. Did your choice agree with Sturges' Rule? 4. \text{Bal.} b. Ages of 50 airplane passengers (xmin=12,xmax=85)\left(x_{\min }=12, x_{\max }=85\right)(xmin=12,xmax=85). Which of the following is not an advantage of the commission compensation plan? These have a significantly higher (pre-tax) contribution limit than company IRAs. This type of compensation refers to a set hourly amount without additional performance-based income. Compensation plans, once set, do not need to be evaluated to determine if it will negatively affect salespeople's wages and total costs. 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. If he earns less in commissions, he must pay the remainder back to the company. Following are the advantages of the straight commission plan: Pay relates directly to performance and results achieved. The firm is looking for a Vice President for sales and promotion. On the other hand, when you pay commission, you pay when an employee does something to cause your business to see a profit. Depending on a companys compensation strategy, there are both pros and cons for hourly versus salaried employees. a supportive sales management leadership style. the following except. 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. . Which of the following is not true regarding the design of a global salesforce compensation system? This content is for information purposes only and should not be considered legal, accounting, or tax advice, or a substitute for obtaining such advice specific to your business. Security and collaboration: The straight salary plan provides a more stress-free working environment for the salespersons. No two compensation plans are alike. Such a plan is quite common in the services industry as well as in the industrial goods sector. 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 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. , holiday pay, and parental leave) to lifestyle benefits (like flexible working hours. No assurance is given that the information is comprehensive in its coverage or that it is suitable in dealing with a customers particular situation. Which of the following is not an advantage of combination plans? 4. 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. bell-shaped distribution. \text{Duke} & \text{85} & \text{Georgetown} & \text{66} & \text{19}\\ The ATO considers this $80,000 taxable income. The sales teams support each other to reach a common goal. i) Beneficial for industries which prohibits direct sales. costing little and reinforcing desirable behavior immediately after it occurs. 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). PMR is common in sales and is good for startups with low liquidity. 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. A per diem expense plan pays the salesperson for all reported expenses. 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. Business is going well for Park N Fly , the company that operates remote parking lots near major airports. Assume that the points scored by the winning teams for all NCAA games follow a 7. An incentive pay cannot work in such a case. Lavish formal recognition programs can provide all of the following benefits to a salesforce except. $$ 3. In designing plans one must balance the goals of the firm, as well as the needs of the sales force and customers. 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. A fixed dollar amount is paid for each day or week in the field. manner. In order to "weather the storm," the best course of action among those presented below is to: Raise commission rates on higher margin products in all regions in order to boost sales. Minimum Income: Straight salary method assures a minimum income to the salesmen. In this situation, employers have to pay overtime, despite the employee being salaried. The tools and resources you need to take your business to the next level. ___________ rewards are those that are given in return for acceptable performance or effort. Control over Salesmen: Straight salary plan gives the management sufficient control over the salesmen. 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} Intuit accepts no responsibility for the accuracy, legality, or content on these sites. \end{array} Employees who prefer to set their own schedules or be their own boss often thrive in commission-only environments. Once the person has established himself in the area, the company can switch to performance-based salary. O True O False. They don't want to worry about the inconsistencies associated with a commission-based pay. Each time a commission check is cut you have the satisfaction of knowing that it's due to something positive. A straight salary can greatly benefit someone who is transferring to a new territory. They receive fixed sums of money at regular intervals (usually each month). These can range from monetary benefits (like extra. Its critical for employers to keep this in mind when deciding between different types of compensation packages. Murray Kiser operates his own catering service. Can I Get Fired For Leaving A WhatsApp Group? 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. Sales Costs: Under the straight salary method, sales costs are not matched with the sales. not, explain. Further, the straight commission motivates poor performers to become more productive since it rewards good performers (Johnston and Marshall, p. 329). Expert Answer. As a business owner it can be a challenge to figure out how to compensate employees. 4. At the end of the pay period, this prepayment is drawn from how much the salesperson earned in commissions. 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. 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. Cost of Administration: The cost of administration of straight salary plan is less than that of straight commission plan. This requires very clearly defined territory outlines and territories that produce enough income to support competitive wages. For more information on your states minimum wage requirements, read up on minimum wage requirements or visit the Department of Labors website. 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. 3. 3. Benefits or Advantages A regular income gives the salesman a good degree of security. Your salespeople are paid on commission. 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. Tax basics you need to stay compliant and run your business. Increase sales and revenues. Another disadvantage is the lack of benefits. The main differences between the straight salary method and straight commission method are explained below: Straight Salary Method vs Straight commission Method. The most commonly used definitions of motivation include these three dimensions: Use the table below. 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. What is salary pay? If an employee is required to work on a holid ay as a regularly scheduled work day, . 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 Employers are also required to pay employees theminimum wage, which can vary depending on their states minimum wage. provide salespeople with trips and other rewards. except. 6. Part B: As a retail sales manager of a large superstore, one of your responsibilities is to train the newly hired employees. the working capital requirements are lessened with the straight-salary compensation plan. \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}}\\ 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 latest research and insights for Small Businesses from QuickBooks. $$ The introduction of HR technology has revolutionized the way HR departments operate. Companies that pay their employees using PMR-based compensation will want to offer additional benefits to make up for their potentially low liquidity. It is a highly attractive model, especially to start-ups who are seeking to penetrate a specific territory. The major disadvantage is that the salespersons may not feel motivated and would only complete the minimum requirements. 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. . Due to the complexity and compliance issues involved, very few companies offer equity or stock. Which of the following accurately describe per diem expense plans? Once the salesperson has established himself in the area, the company can then switch to a performance-based compensation plan if desired. Companies looking for a simple or consistent payroll solution without any surprise payroll expenses will likely build their compensation offering around straight salaries. \underline{\underline{2,300}} && \underline{\underline{101,000}} && \underline{\underline{-2,000}} && \underline{\underline{35,000}} && \underline{\underline{-29,000}}\\ \\ \\ \\ \begin{array} {rcrcr} Sales Management Insight: Sales Commission Plans. There are many people who would simply prefer to work with the relative security of a salary position. Whos using straight salary plus commission compensation? 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. Teams in human resources, graphic design, or other supportive departments will often use straight salary compensation. Paycheck calculator for hourly and salary employees. Terms and conditions, features, support, pricing, and service options subject to change without notice. In this sense, compensation is a counterbalance. It tends to only attract less experienced staff who want a "safe" pay structure. \hline\\ the requirement that expenses be charged and the bills sent directly to the company for payment by the accounting department. Formal recognition programs have a better chance of success if sales managers do all of the following \begin{array} {rcrcrcrcr} In these situations, it can be difficult to determine who contributed most to attaining the sale, making a commission plan difficult to administer. Commission-only compensation plans are usually simpler and easier on payroll than compensation types combined with hourly or salary pay rates. They should be made during recessionary periods. Efficiency: Straight salary method does not distinguish between efficient and inefficient salesmen. Provide an opinion of which type of compensation plan you would prefer as a professional salesperson. And because there is no financial security that kicks in if sales arent made, those who dont earn enough leave or burn out quickly. The importance of matching the abilities and needs of sales recruits to the ____ cannot be overstated. In commission only jobs, companies offer a safety net in the form of draw against commission. The company pays its salespeople a set amount known as a pre-determined draw at the beginning of each pay period. \textbf{\textsf{Accounts}} && \textbf{\textsf{Murray Kiser,}} && \textbf{\textsf{Murray Kiser,}} && \textbf{\textsf{Fees}} \hspace{6pt}\\ Once the person has established himself in the area, the company can switch to performance-based salary. Provide equal pay to all employees at the same level. \\ Employers are often hesitant to use this type of compensation, as payroll expenses can be high or unpredictable. \underline{\ \ \ \ \ \ \ \ \ \ \ \ }&& \underline{-3,000} && \underline{\ \ \ \ \ \ \ \ \ \ \ \ }\\ Because they are self-employed, contractors are eligible for SEP IRAs. -7,200\\ \begin{array}{|l|l|c|c|c|c|c|c|c|} \hline 1. 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. the working capital requirements are lessened with the straight-salary compensation plan. 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). &&&& -2,000\\ 6. Security and collaboration: The straight salary plan provides a more stress-free working environment for the salespersons. In this situation, employees only receive their bonus if the district, division, or even continent hits its sales goals. a. salaries are a fixed cost to the firm and thus tend to decrease proportionally as sales increase. One benefit, from the employers perspective, is the company only pays commissions when the top line improves, so its beneficial from a profitability standpoint. If so, an hourly rate with a flexible schedule could be more attractive. issue a press release detailing the company's changes. Person B works for an NFP and is part of a salary packaging program. How much do employees cost beyond their standard wages? This is a primary method for compensating independent sales agents. 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. Copyright 2023 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. 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. 30,000 && 4,000 && 75,000\\ Today, January 26, 2004). View the full answer. Based on this analysis you know that a larger percentage of the salesperson's pay should be _____________ as compared to ______________ for the best results. In many companies, basics plus bonus-based compensation plans are used as a way to motivate employees. Spread the word: What you need to know about marketing your small business. Straight salary method of remuneration is simple. Employers who pay by the hour should focus on increasing morale and showing employees they are valued in order to avoid turnover. \underline{\underline{14,800}} && \underline{\underline{\ \ \ 2,500}} && \underline{\underline{90,000}} \\ \\ \\ \\ Straight salary method promotes team-spirit and cooperation among the salesmen in the case of joint sales. What was the difference between the day's high and low for one share of Southern Copper? Under Straight salary method, a salesman is paid remuneration on time basis. The remaining 25% of the sick leave payout The different types of compensation include . Advantages of straight-salary compensation plans include all of the following except. Contractors are required to find health insurance and retirement plans on their own. With this type of structure, you'd pay your sales people a straightalbeit competitivesalary like all of your other employees, and nothing else. A regular and stable income can do much to develop a loyal and well-satisfied salesman. Plan A is to borrow at 6%. It gives greater control to the management over the salesmen by means of withholding increments, effecting a transfer, etc. 3. So, it can be easily understood by all salesmen. Operating costs are minimized during slack selling periods. For example, consider a salesman who frequents various retail stores or department stores to check inventory or take orders for replenishment. Focus on Service 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. \end{array} Your base pay provides a steady income during seasons where commission may be more difficult to earn. Companies often feel they can justify a lower salary or rate if they include a more robust benefits package. It has lower turnover rates. Benefit packages amount to a negligible portion of the cost of keeping a salesperson in the field. Advantages. Each is then rated on 12 factors, as shown in the table below. 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. 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). 5. They want to know precisely how much money they're going to make each month and to feel as though that income is dependable. except: make it easy enough to allow for a majority of the salesforce to win. Some terms may not be used. If the nonselling administrative duties of the salesperson are of major importance, this compensation It is a very useful system of remunerating newly-appointed salesmen who are new to the job. The salespersons perfect plan, a residual commission compensation (RCC) plan pays employees a commission as long as the accounts are producing revenue. This type of compensation plan is every salespersons dream. \text{Louisville} & \text{65} & \text{Tennessee} & \text{62} & \text{3}\\ Your national sales force is divided into eight regions, though the Mid-Atlantic region is currently understaffed (sales volume there has always been low). The earnings of a person who is working as an independent contractor are subject to self-employment tax.. Therefore, employers are not required to pay overtime if employees work more than 40 hours per week. In a profit margin/revenue-based (PMR) plan, employees are compensated based on the profitability of the company. 5. Employees need not be scheduled for the same number of hours each week. You also decide to pay your salespeople with the most common type of compensation plan among companies. By creating a feeling of security in the minds of the salesmen, it maintains high morale among the sales force. 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. These plans often include a straight salary income for training periods or during low seasons. You have a meeting with her to outline the drawback(s) of this type of plan . The advantages of straight salary compensation include which of the following? than to older salespeople: When a sales manager assures salespeople that they fulfill a critical role in revenue production and other \textbf{\textsf{Liabilities}} & \bm{+} &&&\textbf{\textsf{Owner's Equity}}\\ Incentives to Salesmen: Straight salary method does not provide any incentive to the salesmen to do hard work. A salesperson who is intrinsically motivated. So, it does not encourage salesmen to do hard work. Everything you need to know about managing and retaining employees. By accessing and using this page you agree to the Terms and Conditions. Advantages of Straight Salary Method 1. Management can direct Salesforceinto various activities more easily. 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. 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. She loves training, creating processes, and introducing her clientele to new apps and technology. Everything you need to prepare for and have a successful holiday season. Browse the definition and meaning of more similar terms. international stocks and bonds But straight commission method is based on the sales effected by the salesmen and not on the time spent on the job. \text{Florida State} & \text{75} & \text{Wake Forest} & \text{70} & \text{5}\\ The directors, who strongly wish to retain family control of the company, must consider issuing securities to outsiders. Katey Maddux is a paddle boarder, music lover, Zumba instructor, and Founder and CEO ofMillennial Accounting, LLC in Miami, Florida. On the other hard, straight commission method does not give the management sufficient control over the salesmen. 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. \begin{array} {c} Companies with employees who work in teams, spend a lot of time on projects, or whose performance is difficult to measure might also be better suited for straight salary compensation. Total sales for the territory are then split among the sales reps in that territory. 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. So what is compensation? 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. MBA Skool is a Knowledge Resource for Management Students, Aspirants & Professionals. To ensure proper classification, employers should begin with the assumption that their commissioned employees are nonexempt, and then review the potential exemptions to determine whether they apply. She helps HR professionals identify issues with their talent management and employment law. However, the$5 million that the business needs for growth cannot be raised within the family. Some of this is likely due to a generational shift in what employees are really looking for. 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.