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You have a meeting with her to outline the drawback(s) of this type of plan. A salaried compensation plan can help promote a sense of teamwork needed to close these more complex transactions. Some people won't work for anything other than a fixed salary. Celebrating the stories and successes of real small business owners. Overall compensation and rewards increase with the use of team selling. Straight salary method of remuneration is found suitable and is usually adopted under the following circumstances: 1. Advantages of straight salary. This type of compensation refers to a set hourly amount without additional performance-based income. They want to know precisely how much money they're going to make each month and to feel as though that income is dependable. Straight Salary Method of Remuneration | Meaning | Suitability | Merits | Demerits, Salesmanship | Meaning | Features | Objectives, Arguments in favor of Social Responsibility of Business, Business Enterprise Meaning | Public | Private | Joint, 10 Most Important functions of a Group Leader, Factors to be Considered in Planning Factory Building, Reasons for Governments Intervention in Private Business, Factors Influencing Salesmen Remuneration Plan, Organizational Factors Responsible for Resistance to Change, Avoidable and Unavoidable causes of Labour Turnover, 5 Important Classification of Business Environment, Under what circumstances a Pvt company be, Purchase Department | Purchase Officer | Qualification, 7 Arguments against Social Responsibilities of Business, Accountlearning | Contents for Management Studies |. In most companies, the bonus is usually tied to a budgetor other target that has little significance to the employee. 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. 4. Relevant resources to help start, run, and grow your business. Security and collaboration: The straight salary plan provides a more stress-free working environment for the salespersons. When there are considerable seasonal variations in the sales made by the salesmen. Millennial Accounting primarily serves two nichesreal estate and property managementand is on a mission to serve, inspire, educate, and problem-solve. The latest product innovations and business insights from QuickBooks. Sales force compensation should not only meet the goals of the firm, but should also communicate to the sales force what is important. This compensation category also includes restaurant employees paid mostly in tips. 30,000 && 4,000 && 75,000\\ A regular and stable income can do much to develop a loyal and well-satisfied salesman. By clicking Submit, you agree to permit Intuit to contact you regarding QuickBooks and have read and acknowledge our Privacy Statement. follow-up and service. From a payroll standpoint, this type of compensation is harder to administer. Because they are self-employed, contractors are eligible for SEP IRAs. If theyve just started a family, they may be looking for benefits like parental leave and the chance to work from home. What is salary pay? All of the above. In this type of compensation, income is solely based on sales made. These have a significantly higher (pre-tax) contribution limit than company IRAs. 6. \text{Kansas} & \text{78} & \text{Colorado} & \text{57} & \text{21}\\ 4. It has lower turnover rates. As a business owner it can be a challenge to figure out how to compensate employees. 3. \underline{\underline{2,300}} && \underline{\underline{101,000}} && \underline{\underline{-2,000}} && \underline{\underline{35,000}} && \underline{\underline{-29,000}}\\ \\ \\ \\ A good salary plus commission plan will motivate employees to higher sales and performance while giving them the peace of mind of regular, stable income. Did your choice agree with Sturges' Rule? Sales contests will continue to be an important tool for achieving expedient results. A fixed dollar amount is paid for each day or week in the field. Check to see how the salespeople would fare under the new plan by using sales figures from the previous year and calculating expecting compensation. Employers are also required to pay employees the. Employers may use this type of compensation to keep payroll expenses low while still motivating employees to perform. 8 Pros and Cons of Straight Commission - BrandonGaille.com __________ tends to help give the sales force the needed push to sell complex products or services and can be used to redirect salesperson efforts toward specific product lines; under this plan administrative costs tend to be high. 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. 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. Provide an opinion of which type of compensation plan you would prefer as a professional salesperson. Employers are also required to pay employees theminimum wage, which can vary depending on their states minimum wage. If its part of their contract, salespeople can continue to receive commissions even after theyve left the company. Whos using straight hourly compensation? They don't want to worry about the inconsistencies associated with a commission-based pay. According to the text, which of the following is not one of the rewards typically offered to salespeople? 8,000 && 101,000\\ A major objective of a well-designed compensation package is to: 1. This is one of the most reliable types of compensation plans. 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. When the sales effected by the individual salesman cannot be isolated (i.e., when the sales are made collectively by two or more salesmen). Salespeople can be compensated in a number of different ways. Your salespeople are paid on commission. 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. Employees who receive it are considered nonexempt by the FLSA, meaning their compensation is regulated. Selling situations that require salespeople to perform special services for customers are more likely to be performed when salespeople are on salary. -26,000\\ What are the most popular types of compensation packages? An employee who works only on salary has little external motivation to go above and beyond. Running payroll for hourly employees, as opposed to salaried employees, can also be significantly cheaper, making it easier for companies to hit financial goals. The importance of the salesperson's personal skills in making sales is considerable. 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. It assures a steady minimum income to the salesmen. 5. 7. Chapter 12 Flashcards | Quizlet Employees are guaranteed to receive at least base salary to pay the bills, even during a time period when their sales are low. For more information on your states minimum wage requirements, read up on minimum wage requirements or visit the Department of Labors website. Your paycheck is based on a specific percentage of the sales that you are able to generate. Incentives are often seen as effective triggers when the objective is to improve the top line i.e. Salaried workers who earn more than $23,660 per year are considered exempt under the Fair Labor Standards Act (FLSA). Increment is given annually as per the scale of pay, and after a certain number of years of service, salesman is promoted to a higher scale of pay. As the various salesmen on a particular scale of pay are paid the same remuneration, it avoids jealousy among the salesmen. Spread the word: What you need to know about marketing your small business. 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. 10. Usually, the type of compensation plan an organization chooses, and the type that an individual accepts, depends on the market conditions and the goals of those involved. If an employee makes no sales during a month, he doesnt get paid. This requires very clearly defined territory outlines and territories that produce enough income to support competitive wages. The major drawback to salary plus commission plans is that they are more expensive and more costly to administer. Companies looking for a simple or consistent payroll solution without any surprise payroll expenses will likely build their compensation offering around straight salaries. Does not provide security, so the reps will work harder. 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. So, it can be easily understood by all salesmen. Which of the following is not a factor to be considered when developing a commission-only plan? Provide a mix of both compensation and noncompensation rewards comparable to other firms. A straight salary can greatly benefit someone who is transferring to a new territory. 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. Your email address will not be published. \end{array} "USA Today": Finding What Motivates Your Employees. \text{Bal. Employers have to think about who their target employee is and what that employee is looking for. Assume that the points scored by the winning teams for all NCAA games follow a They may have less vacation time or even zero paid vacation time. \text{Kentucky} & \text{71} & \text{Notre Dame} & \text{63} & \text{8}\\ tend to produce too many salesforce objectives which are of the crisis-resolution variety. Subscribe to our newsletter and stay updated on the latest HR news and trends. Your ultimate goal is to control selling expense and provide extra rewards for added results. \textbf{\textsf{Liabilities}} & \bm{+} &&&\textbf{\textsf{Owner's Equity}}\\ provide salespeople with trips and other rewards. Hourly roles can often be perceived as less valuable or easier to replace. One benefit, from the employers perspective, is the company only pays commissions when the top line improves, so its beneficial from a profitability standpoint. The most serious disadvantage of a straight-salary compensation plan is. You can tweak the budget annually by deciding whether the business has flourished enough to offer merit raises. \\ Whos using straight salary compensation? Whos using straight salary plus commission compensation? Being Paid on Salary: Pros and Cons | Indeed.com Sparks holds a Bachelor of Arts in business. Depending on a companys compensation strategy, there are both pros and cons for hourly versus salaried employees. According to the Customer-Product Matrix, sales positions that focus primarily on new business development require a greater proportion of salary than incentive. Basis: Straight salary method is based on the time spent on the job, and not on the volume of sales effected by the salesmen. These can range from monetary benefits (like extra. Another disadvantage is the lack of benefits. For each frequency distribution, suggest "nice" bins. nonfinancial reward: All of the following are steps suggested for facilitating a sense of accomplishment in the salesforce 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. \text{Stanford} & \text{77} & \text{Southern Cal} & \text{67} & \text{10}\\ Commission-only compensation can be valuable for employers because top performers get the most money. pharmaceutical sales) is the most common type of sales process used. A straight salary can greatly benefit someone who is transferring to a new territory. Which of the following statements regarding changes in the reward system is false? 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. Advantages And Disadvantages Of A Straight Commission It is usually easy to design pay plans that fully meet the goals and needs of the firm, customers, and salespeople. 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. In these situations, it can be difficult to determine who contributed most to attaining the sale, making a commission plan difficult to administer. 6. Advantages of salary plus commission The benefits of a salary plus commission plan include: 1. issue a press release detailing the company's changes. 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. In fields that typically involve commissions, the outside sales exemption and the retail sales exemption may also apply. has very specific requirements for classifying and paying employees. The tools and resources you need to manage your mid-sized business. Each line designated by a number indicates the effect of a transaction on the equation. You have a meeting with her to outline the drawback(s) of this type of plan . What was the difference between the day's high and low for one share of Southern Copper? Salespeople should compete in teams with each member of the team making a contribution to the group's total goal. 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. 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. Which of the following conditions would indicate to the sales manager that the proportion of the Corporate industries and IT sales, for example, often use this type of compensation when creating bonus plans. 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 i) Beneficial for industries which prohibits direct sales. \text{Wisconsin} & \text{76} & \text{Illinois} & \text{56} & \text{20}\\ The complete guide to employee compensation and benefits - QuickBooks Long ago, we wrote about the importance of a compensation plan in an organization. In some organizations, selling is a collaborative effort. Which of the following is not mentioned in the text as a challenge to sales managers attempting to adjust Here Are the Pros of Straight Commission. The sales numbers are added up and all commissions are split equally among all sales professionals. 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. 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. Helps management to control salespeople's activities. 2. \text{JPM} & \text{JP Morgan Chase & Co.} & \text{70.61} & \text{57.07} & \text{57.45} & \text{$+1.11$} & \text{20,987,678} & \text{58.11} & \text{57.14}\\ \hline When the salesmen are required to create markets for a product. But straight commission method does not assure any minimum income to the salesmen. Sales Costs: Under the straight salary method, sales costs are not matched with the sales. The net result of setting limits on sales expenses is that salespeople spend their valuable time juggling expenses from one category to another or from one time period to another to make sure they cover their costs. One advantage of hourly pay is your eligibility for overtime. The content on MBA Skool has been created for educational & academic purpose only.