the following except. There are many people who would simply prefer to work with the relative security of a salary position. has very specific requirements for classifying and paying employees. , a pet-friendly working environment, etc.). You have a meeting with her to outline the drawback(s) of this type of plan. Person A pays over $18,000 in tax and receives a net income of around $62,000. What is salary pay? System is easy to understand and compute. 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. Salesperson compensation has been an issued marked by trial and error to discover the right formula. In this situation, employees only receive their bonus if the district, division, or even continent hits its sales goals. Advantages of salary plus commission The benefits of a salary plus commission plan include: 1. Teams in human resources, graphic design, or other supportive departments will often use straight salary compensation. \text{Louisville} & \text{65} & \text{Tennessee} & \text{62} & \text{3}\\ You now require the sales force to sell $35,000 worth of product each month to make a commission. It tends to eliminate or reduce high-pressure selling, i.e., pushing items which are not needed by the customers. Employees who are self-motivated and hardworking are attracted to this type of work because theres typically no upper limit to the amount in tips or commission they can take home. In the same vein, contractors are not subject to withholding and are therefore responsible for their own taxes (the self-employment tax). 5 Different Types of Sales Compensation Plans &&\textbf{\textsf{Assets}}\\ This pay plan is the: Combination plan (Base salary + performance based commission). 5. A sample of 10 NCAA college basketball game scores provided the following data (USA If so, an hourly rate with a flexible schedule could be more attractive. \end{array} manner. 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. Such a plan is quite common in the services industry as well as in the industrial goods sector. Fresh business resources are headed your way! Your email address will not be published. A job like this is more likely to have flexible working hours or the ability to work from home. The Advantages of a Straight Salary Plan for Salespeople As a staff reporter, she has written hundreds of newspaper and magazine articles, and she is also the author of two published novels. This is a primary method for compensating independent sales agents. Copyright 2023 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. One advantage of hourly pay is your eligibility for overtime. scores more than 90 points. international stocks and bonds Salesmen Reward: Under the straight salary method, salesmens rewards are not matched with their efforts. The independent contractor category is broad and includes everything from lawn services to sales to doctors and lawyers. The earnings of a person who is working as an independent contractor are subject to self-employment tax.. Such positions might include retail sales, restaurant employees, barbers and cosmetologists, and customer service reps. Straight salary compensation is typically used in industries where: Missionary selling (i.e. the requirement that expenses be charged and the bills sent directly to the company for payment by the accounting department. As a result, salaried workers often dont track hours worked. 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). A salesperson who is intrinsically motivated. 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. advantages and disadvantages of straight salary and straight commission Intuit, QuickBooks, QB, TurboTax, Mint, Credit Karma, and Mailchimp are registered trademarks of Intuit Inc. Employers who pay by the hour should focus on increasing morale and showing employees they are valued in order to avoid turnover. A per diem expense plan pays the salesperson for all reported expenses. Solved QUESTION 17 An advantage of using a straight salary - Chegg The companys income tax rate is 35%. }\\ Salaried employees receive an equal portion of their annual compensation every week. . 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. A straight salary can greatly benefit someone who is transferring to a new territory. A change from straight commission to straight salary. \begin{array}{l} 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. \end{array} \bm{=}\\ \bm{=} \\ \\ \\ \\ \\ \\ \\ \\ \\ \\ \\ \\ 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. Copyright 2023 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. The importance of the salesperson's personal skills in making sales is considerable. In this situation, employers have to pay overtime, despite the employee being salaried. I thought wed follow up on that post by exploring the six different types of compensation plans in depth. 3. \underline{\ \ \ \ \ \ \ \ \ \ \ \ }&& \underline{-3,000} && \underline{\ \ \ \ \ \ \ \ \ \ \ \ }\\ After initial investigations by Holmes Miller, head of the Operations Department, BIA has narrowed the list to 9 cities. This form of nonfinancial reward is generally considered to be more desirable to younger salespeople Which of the following is not one of the desired outcomes of an optimal reward system? 5. 2. 11 Main Types of Sales Compensation Plans (With Examples) Applicable laws may vary by state or locality. Prepare an analysis to determine which plan will result in the highest earnings per share of common stock. \underline{\underline{2,300}} && \underline{\underline{101,000}} && \underline{\underline{-2,000}} && \underline{\underline{35,000}} && \underline{\underline{-29,000}}\\ \\ \\ \\ However, a straight salary plan also has its own advantages. 8. On the other hand, under the straight commission method, salesmens rewards are matched with their efforts. 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 there are considerable seasonal variations in the sales made by the salesmen. You gain authority, prestige and responsibility. Which of the following is not a guideline for optimizing the use of sales contests? \text{Bal. Accordingly, the information provided should not be relied upon as a substitute for independent research. This can either be done through direct contact with t Are you ready for a pay raise? 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. 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. Fringe Benefits and Salary Plan based upon the employee's rate of pay immediately preceding retirement. \text{Kansas} & \text{78} & \text{Colorado} & \text{57} & \text{21}\\ Spread the word: What you need to know about marketing your small business. 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. 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. An incentive pay cannot work in such a case. 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). Employees who receive it are considered nonexempt by the FLSA, meaning their compensation is regulated. Each is then rated on 12 factors, as shown in the table below. That means, there will not be much bad debts. Based on this analysis you know that a larger percentage of the salesperson's pay should be _____________ as compared to ______________ for the best results. \\ The advantages of straight salary compensation include which of the following? their compensation plans to recognize team performance? Employees need not be scheduled for the same number of hours each week. 6. On the other hard, straight commission method does not give the management sufficient control over the salesmen. On the other hand, TVC can lead to hostility between employees if they dont feel the workload or efforts of all representatives are balanced. Purely paid-by-commission plans can create an unfriendly, competitive environment within teams. 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. We provide third-party links as a convenience and for informational purposes only. 2. Straight salary might not be tempting to top-performing sales reps who want to make as much money as they can through hard work and dedication. elect to receive regular straight time pay or bank compensatory time at their straight time rate. Are they just trying to pay their way through college? As a business owner it can be a challenge to figure out how to compensate employees. But straight commission method distinguishes between efficient and inefficient salesmen. Sales force compensation should not only meet the goals of the firm, but should also communicate to the sales force what is important. 2. Differences between Straight Salary and Straight Commission Method 6. 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. bell-shaped distribution. is considered a serious offense, which, if detected, often leads to termination of employment. The tools and resources you need to manage your mid-sized business. How to find funding and capital for your new or growing business. 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. MBA Skool is a Knowledge Resource for Management Students, Aspirants & Professionals. Another disadvantage is the lack of benefits. Advantages of straight-salary compensation plans include all of the following except. When it comes to employee compensation, there isnt a one-size-fits-all solution. provide salespeople with trips and other rewards. One benefit, from the employers perspective, is the company only pays commissions when the top line improves, so its beneficial from a profitability standpoint. \\ Defined by the FLSA, tipped employees are those who receive more than $30 per month in tips. It does not provide any incentive for hard work. Total sales for the territory are then split among the sales reps in that territory. 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. 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. Which of the following is not an advantage of the commission compensation plan? Guaranteed income With a salary plus commission plan, you still earn a base salary regardless of how many products you sell. If an employee is required to work on a holid ay as a regularly scheduled work day, . Part A: Compare the advantages and disadvantages of straight salary and straight commission compensation plans. Which of the following is an advantage of a straight-commission compensation plan? Straight salary plan can help promote a sense of equality among sales people who work as teams or small groups, for everyone is paid equally and the contribution of each team member is also expected to be equal. Whos using straight salary compensation? Hourly roles can often be perceived as less valuable or easier to replace. Selling situations that require salespeople to perform special services for customers are more likely to be performed when salespeople are on salary. https://quickbooks.intuit.com/r/payroll/employee-compensation-benefits-guide/. Per the IRS definition, the contractor is in control of how the work gets done, so there is a lot of freedom. This requires very clearly defined territory outlines and territories that produce enough income to support competitive wages. The firm is looking for a Vice President for sales and promotion. 5. 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} 4. Straight Salary Compensation. How much do employees cost beyond their standard wages? The ideal compensation plan motivates salespeople to achieve their own and the company's objectives. Dana Sparks has been a professional writer since 1990. Starting salaries often begin far enough above hourly rates to be able to afford a down payment on a house or car. 6. 10. Under a straight commission plan, sales managers usually have less control over their reps. With regard to compensation programs, most firms just use a draw against commission. Get help with QuickBooks. Some disadvantages of straight salary compensation may include reduced retention and high turnover if employees dont see opportunities to increase their pay. 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 Based on this information, which salesperson compensation plan would work best? Your boss thinks you should implement a salary plus commission plan with an incentive ceiling. Fixed salary paid to salesman at at the end of every month, irrespective of the sales made by him during the month is called Straight Salary. The most commonly used definitions of motivation include these three dimensions: Use the table below. This type of compensation plan puts less pressure on individuals and fosters team-building. Your paycheck is based on a specific percentage of the sales that you are able to generate. Profit margin is one of the most popular types of compensation used by start-up companies. Certain selling opportunities require collaborative efforts and an incentive-based system may not be suitable because it might be difficult to determine different individuals level of contribution. But straight commission method provides sufficient incentive to the salesmen to do hard work. This is a very broad category of compensation. Since there are no (monetary) incentives to work harder, a non-competitive environment may tempt employees to become complacent, limiting the companys growth. The Advantages & Disadvantages of Salary - Career Trend Plan A is to borrow at 6%. Employees are guaranteed to receive at least base salary to pay the bills, even during a time period when their sales are low. Which of the following is not true regarding the design of a global salesforce compensation system? 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 Which of the following is not mentioned in the text as a challenge to sales managers attempting to adjust Is good for a financially weak company. Employers have to think about who their target employee is and what that employee is looking for. This means you can always keep earning more money if you're willing to put in some extra hours of work. \hline Relevant resources to help start, run, and grow your business. ii) There will be no surprise of payroll expenses. 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). 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. except. Terms and conditions, features, support, pricing, and service options subject to change without notice. It tends to only attract less experienced staff who want a "safe" pay structure. Therefore, employers are not required to pay overtime if employees work more than 40 hours per week. In this compensation structure, the employee receives a set hourly rate, plus a percentage of their sales. Additionally, they have full control over benefits like insurance and retirement management. In case the salesperson shows high sales performance, the firm increases its salary. Commission-only compensation can be valuable for employers because top performers get the most money. 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. Offers considerable incentive for the salespeople. The directors are considering three financing plans. Review the example home inventory shown before. i) Beneficial for industries which prohibits direct sales. 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. 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. What is Compensation? | Types of Pay | PayScale Salary Plus Commission: Advantages and Disadvantages Estimate the percentage of NCAA games in which the winning team Everything you need to start accepting payments for your business. 2. Due to the complexity and compliance issues involved, very few companies offer equity or stock. In most companies, the base pay is determined by the workers job title and job role. 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. Tips may be considered part of the employees wages, but the employer must pay no less than $2.13 an hour in direct wages and make sure that the amount of tips received is enough to meet the remainder of the hourly minimum wage. Benefits of salary plus commission compensation, Disadvantages of salary plus commission compensation, This type of compensation refers to a set hourly amount without additional performance-based income. The salary-plus-commission pay structure also encourages employees to set more aggressive sales goals. \begin{array}{|l|l|c|c|c|c|c|c|c|} \hline Leadership Insights \text{JPM} & \text{JP Morgan Chase & Co.} & \text{70.61} & \text{57.07} & \text{57.45} & \text{$+1.11$} & \text{20,987,678} & \text{58.11} & \text{57.14}\\ \hline Once the person has established himself in the area, the company can switch to performance-based salary.

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