The primary benefit of salary-plus-commission plans is they allow the compensation program to be tailored to the needs of a particular firm. The sales teams support each other to reach a common goal. According to a survey of sales executives reported in the text, the most popular sales incentive is. Efficiency: Straight salary method does not distinguish between efficient and inefficient salesmen. Which of the following is not a form of nonfinancial compensation? The firm is looking for a Vice President for sales and promotion. Benefits or Advantages A regular income gives the salesman a good degree of security. Advantages of straight-salary compensation plans include all of the following except. Salespeople should compete in teams with each member of the team making a contribution to the group's total goal. 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. Employees who prefer to set their own schedules or be their own boss often thrive in commission-only environments. This is one of the most reliable types of compensation plans. How to start and run a successful e-commerce business. It is often used in direct sales industries and multi-level marketing (MLM) firms that work with independent contractors. So, it does not encourage salesmen to do hard work. For more information on your states minimum wage requirements, read up on minimum wage requirements or visit the Department of Labors website. Service focus: Such a plan works well for sales positions where pushing a product may not be necessary and customer service is of utmost importance. This offers the security of a salary with the greater earning potential of commission. When there are considerable seasonal variations in the sales made by the salesmen. Defined by the FLSA, tipped employees are those who receive more than $30 per month in tips. elect to receive regular straight time pay or bank compensatory time at their straight time rate. Everything you need to prepare for and have a successful holiday season. From a morale perspective, they can be more satisfied with their work-life balance since no one is dictating it. Applicable laws may vary by state or locality. Each time a commission check is cut you have the satisfaction of knowing that it's due to something positive. Employees may be confused as to how pay is calculated, so transparency is important. Which, if any, of the following sources available will help you in your task? 4. This system safeguards the interests of the consumers also. 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. 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. In your job analysis of the salesperson's activities, you discover that a significant level of activity of a successful salesperson includes taking orders for inventory replenishment, equipment installation and maintenance, and shelf-management programs. \hline By clicking Submit, you agree to permit Intuit to contact you regarding QuickBooks and have read and acknowledge our Privacy Statement. You have a meeting with her to outline the drawback(s) of this type of plan . The directors are considering three financing plans. But straight commission method provides sufficient incentive to the salesmen to do hard work. follow-up and service. As a result, she avoids the high degree of stress and uncertainty that comes with pay-for-performance compensation. But straight commission method is based on the sales effected by the salesmen and not on the time spent on the job. Dana Sparks has been a professional writer since 1990. Are you ready for a pay raise? The straight salary plan is one of the simplest compensation plans that companies offer to their employees, particularly sales representatives. Flexibility has been cited as both an advantage and a disadvantage of this compensation pay plan: A common criticism of combination pay plans is that they. \text{Louisville} & \text{65} & \text{Tennessee} & \text{62} & \text{3}\\ 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. issue a press release detailing the company's changes. We dont want you to miss anything. Estimate the percentage of NCAA games in which the winning team Factors that might affect commission rates include the difficulty of the sale, education and training required, costs associated with the geographical location, work environment, the process of approaching clients, and bonus structures (if applicable). Further, the straight commission motivates poor performers to become more productive since it rewards good performers (Johnston and Marshall, p. 329). This form of nonfinancial reward is generally considered to be more desirable to younger salespeople These plans often include a straight salary income for training periods or during low seasons. To implement a new or modified reward system, sales managers should do all of the following except. MBA Skool is a Knowledge Resource for Management Students, Aspirants & Professionals. Here Are the Pros of Straight Commission. 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. The goal of the compensation package is to reward employees for their efforts without putting the firm's profitability in jeopardy. except. No bonuses, no commissions, and few, if any, sales incentives. 3. they contribute little to company loyalty, resulting in potential salesforce control problems. 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. Companies that pay their employees using PMR-based compensation will want to offer additional benefits to make up for their potentially low liquidity. 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. 100% (2 ratings) FALSE because straight salary can make all sales reps equivalent individuals, which is best when th . 2. Lavish formal recognition programs can provide all of the following benefits to a salesforce except. The major disadvantage is that the salespersons may not feel motivated and would only complete the minimum requirements. WinningTeamPointsLosingTeamPointsWinningMarginArizona90Oregon6624Duke85Georgetown6619FloridaState75WakeForest705Kansas78Colorado5721Kentucky71NotreDame638Louisville65Tennessee623OklahomaState72Texas666Purdue76MichiganState706Stanford77SouthernCal6710Wisconsin76Illinois5620\begin{matrix} https://quickbooks.intuit.com/r/payroll/employee-compensation-benefits-guide/. You were given the mandate by your boss to change the compensation plan so that the total salesperson compensation (salary plus commission) is lowered. The most serious disadvantage of a straight-salary compensation plan is. If its part of their contract, salespeople can continue to receive commissions even after theyve left the company. Employers have to think about who their target employee is and what that employee is looking for. However, a straight salary plan also has its own advantages. 5. 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. 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. These can range from monetary benefits (like extra. When the salesmen are new to the job (i.e., for remunerating the newly appointed salesmen.). 3. Of course, there are exceptions to every rule. Advantages of straight salary. Hourly plus commission compensation does have its disadvantages as well. It gives greater control to the management over the salesmen by means of withholding increments, effecting a transfer, etc. Although quite popular, salary compensation plans have some disadvantages. Straight salary method of remuneration is simple. Straight Salary Compensation. Intuit accepts no responsibility for the accuracy, legality, or content on these sites. TVC is most often used in team-based corporate cultures. 8,000 && 101,000\\ the working capital requirements are lessened with the straight-salary compensation plan. The tools and resources you need to get your new business idea off the ground. It is a highly attractive model, especially to start-ups who are seeking to penetrate a specific territory. 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 1. 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). 1. The ideal compensation plan motivates salespeople to achieve their own and the company's objectives. This article has been researched & authored by the Business Concepts Team. A straight salary can also benefit an experienced salesperson who is transferring to a new territory where the company and its products may be completely unknown. On the other hand, under the straight commission method, salesmens rewards are matched with their efforts. the working capital requirements are lessened with the straight-salary compensation plan. salesperson's total pay that is salary should be relatively low? than to older salespeople: When a sales manager assures salespeople that they fulfill a critical role in revenue production and other Before making any decisions, consider what type of compensation you can offer potential employees and what the stipulations of that compensation plan are. View the full answer. \\ In this situation, employees only receive their bonus if the district, division, or even continent hits its sales goals. \text{ESI} & \text{ITT Ed Services} & \text{7.95} & \text{1.93} & \text{2.95} & \text{-0.03} & \text{140,466} & \text{3.11} & \text{2.92}\\ \hline On the other hard, straight commission method does not give the management sufficient control over the salesmen. 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. Advantages of Straight Salary Method 1. Once you own property, you should take steps to protect it from loss, theft, and damage. WinningTeamArizonaDukeFloridaStateKansasKentuckyLouisvilleOklahomaStatePurdueStanfordWisconsinPoints90857578716572767776LosingTeamOregonGeorgetownWakeForestColoradoNotreDameTennesseeTexasMichiganStateSouthernCalIllinoisPoints66667057636266706756WinningMargin241952183661020. In most companies, the bonus is usually tied to a budgetor other target that has little significance to the employee. 2. You gain authority, prestige and responsibility. 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. Intuit, QuickBooks, QB, TurboTax, Mint, Credit Karma, and Mailchimp are registered trademarks of Intuit Inc. &&&&&&&& -26,000\\ i) Beneficial for industries which prohibits direct sales. In most companies, the base pay is determined by the workers job title and job role. channeled in directions consistent with the overall strategic role of the salesforce within the firm. The key to this type of plan is to offer enough stability that employees feel satisfied and secure but to pair that salary with a commission that motivates stellar performance. plan is recommended: Advantages of straight-salary compensation plans include all of the following except. PMR is common in sales and is good for startups with low liquidity. For post-Depression-era baby boomers, the security of a steady salary is important. salesperson's total pay that is salary should be relatively high? Part A: Compare the advantages and disadvantages of straight salary and straight commission compensation plans. You also decide to pay your salespeople with the most common type of compensation plan among companies. Another disadvantage is the lack of benefits. +35,000\\ Fringe Benefits and Salary Plan based upon the employee's rate of pay immediately preceding retirement. Millennial Accounting primarily serves two nichesreal estate and property managementand is on a mission to serve, inspire, educate, and problem-solve. 2. 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? Your national sales force is divided into eight regions, though the Mid-Atlantic region is currently understaffed (sales volume there has always been low). 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. Check to see how the salespeople would fare under the new plan by using sales figures from the previous year and calculating expecting compensation. 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. Compensation plans, once set, do not need to be evaluated to determine if it will negatively affect salespeople's wages and total costs. Your positive feeling towards inclusion at work should be synced with your actions on making a change. While in certain compensation plans, the salespersons receive benefits on accomplishment for specific tasks (e.g. TheDepartment of Laborhas very specific requirements for classifying and paying employees. After initial investigations by Holmes Miller, head of the Operations Department, BIA has narrowed the list to 9 cities. If you have less experience or education than other job applicants, taking a salaried . 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. This compensation type tends to attract fewer people since there is no secure base pay. 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. This can either be done through direct contact with t Are you ready for a pay raise? 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). \\ This leaves the salespersons with no opportunity for extra money or incentives. All of the above. If theyve just started a family, they may be looking for benefits like parental leave and the chance to work from home. a. salaries are a fixed cost to the firm and thus tend to decrease proportionally as sales increase. The independent contractor category is broad and includes everything from lawn services to sales to doctors and lawyers. Hourly roles can often be perceived as less valuable or easier to replace. \\ 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. Formal recognition programs have a better chance of success if sales managers do all of the following Additional information and exceptions may apply. Copyright 2023 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. Cost of Administration: The cost of administration of straight salary plan is less than that of straight commission plan. . \underline{\underline{2,300}} && \underline{\underline{101,000}} && \underline{\underline{-2,000}} && \underline{\underline{35,000}} && \underline{\underline{-29,000}}\\ \\ \\ \\ The tools and resources you need to manage your mid-sized business. Match the terms with the definitions. Good salespeople can continue to receive residual commission ever after they leave the company through negotiation. Because her income is stable, planning and managing her personal finances is easier. Subscribe to our newsletter and stay updated on the latest HR news and trends. Each is then rated on 12 factors, as shown in the table below. 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. \text{Winning Team} & \text{Points} & \text{Losing Team} & \text{Points} & \text{Winning Margin}\\ Advantages of salary plus commission The benefits of a salary plus commission plan include: 1. Selling situations that require salespeople to perform special services for customers are more likely to be performed when salespeople are on salary. Control over Salesmen: Straight salary plan gives the management sufficient control over the salesmen. Because there is no incentive to push products, the salesperson can be more concerned with meeting the needs of the customer and building a long-term relationship, which is important in a situation in which repeat visits are part of the job. If you choose this plan, you'll pay your reps using a mix of base salary and performance-based rewards. 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. Hence, this concludes the definition of Straight Salary Plan along with its overview. \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{-3,000}\\ You now require the sales force to sell $35,000 worth of product each month to make a commission. In this compensation structure, the employee receives a set hourly rate, plus a percentage of their sales. Are benefits included in the definition? Your ultimate goal is to control selling expense and provide extra rewards for added results. \\ Among the drawback(s) you will discuss include: You have read a "want ad" in the latest edition of Marketing News. Whos using straight salary plus commission compensation? This type of compensation is well-suited for employees who work in a team-based culture. Terms and conditions, features, support, pricing, and service options subject to change without notice. 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