That means, there will not be much bad debts. You can tweak the budget annually by deciding whether the business has flourished enough to offer merit raises. 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. 3. Millennial Accounting primarily serves two nichesreal estate and property managementand is on a mission to serve, inspire, educate, and problem-solve. The salesperson experiences a high level of security with a salaried sales position. No bonuses, no commissions, and few, if any, sales incentives. -26,000\\ follow-up and service. Does not provide security, so the reps will work harder. According to the Customer-Product Matrix, sales positions that focus primarily on new business development require a greater proportion of salary than incentive. O True O False. Salesperson compensation has been an issued marked by trial and error to discover the right formula. So, it can be easily understood by all salesmen. \end{matrix} This offers the security of a salary with the greater earning potential of commission. Commission-only compensation plans are usually simpler and easier on payroll than compensation types combined with hourly or salary pay rates. Hence, this concludes the definition of Straight Salary Plan along with its overview. The salary-plus-commission pay structure also encourages employees to set more aggressive sales goals. 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. So, it does not encourage salesmen to do hard work. Did your choice agree with Sturges' Rule? __ A mutual fund that purchases 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 Due to the complexity of the plan and its many compliance issues, few companies offer equity or stock in the short-term. Therefore, employers are not required to pay overtime if employees work more than 40 hours per week. They may have less vacation time or even zero paid vacation time. 7. By clicking Submit, you agree to permit Intuit to contact you regarding QuickBooks and have read and acknowledge our Privacy Statement. \end{array} On a straight salary, they will be paid this regardless of how many deals they close. Summary financial data for February are presented in equation form as follows. One of your first tasks is to evaluate the level of compensation for your sales force. A fixed dollar amount is paid for each day or week in the field. Salesmen have the greatest. View the full answer. In most companies, the bonus is usually tied to a budgetor other target that has little significance to the employee. 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. Its worth noting that inconsistent working hours can also hurt employees who may be counting on a consistent income. Helps management to control salespeople's activities. 6. The workplace catchphrase you need to know. With ambitious expansion plans, BIA has decided it needs a second service hub on the continent, to complement its large Heathrow (London) repair facility. An employee who works only on salary has little external motivation to go above and beyond. 3. A straight salary plan can be advantageous in certain situations. 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. It has lower turnover rates. Salespeople may also be paid on a straight salary basis in which there is no opportunity to earn incentives. &&&&&& 35,000\\ \\ 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} \text{Stanford} & \text{77} & \text{Southern Cal} & \text{67} & \text{10}\\ Which of the following conditions would indicate to the sales manager that the proportion of the 4. It is often used in direct sales industries and multi-level marketing (MLM) firms that work with independent contractors. In this sense, compensation is a counterbalance. But straight commission method distinguishes between efficient and inefficient salesmen. their compensation plans to recognize team performance? How to find funding and capital for your new or growing business. Check to see how the salespeople would fare under the new plan by using sales figures from the previous year and calculating expecting compensation. In case the salesperson shows high sales performance, the firm increases its salary. The tools and resources you need to run your business successfully. Compensation usually takes the form of monetary payment exchanged for time, labor and expertise. 9. Everything you need to start accepting payments for your business. The company sets a minimum and maximum range that can increase, decrease or remain the same, depending on the workers performance. The tools and resources you need to manage your mid-sized business. If theyve just started a family, they may be looking for benefits like parental leave and the chance to work from home. Katey Maddux is a paddle boarder, music lover, Zumba instructor, and Founder and CEO of. Sparks holds a Bachelor of Arts in business. The board of directors of this family-owned company believes that Park N Fly could earn an additional $1.5 million income before interest and taxes by expanding into new markets. Subscribe to our newsletter and stay updated on the latest HR news and trends. 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? -15,000 &&&& +15,000\\ Running payroll for hourly employees, as opposed to salaried employees, can also be significantly cheaper, making it easier for companies to hit financial goals. All of the above. Readers should verify statements before relying on them. 6. Before making any decisions, consider what type of compensation you can offer potential employees and what the stipulations of that compensation plan are. 6. She loves training, creating processes, and introducing her clientele to new apps and technology. For more information on your states minimum wage requirements, read up on minimum wage requirements or visit the Department of Labors website. Assume that the points scored by the winning teams for all NCAA games follow a 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. \\ Perhaps the most serious shortcoming of straight-commission plans is that. Estimate the percentage of NCAA games in which the winning team \text{Louisville} & \text{65} & \text{Tennessee} & \text{62} & \text{3}\\ Which one of the following statements regarding global compensation is false? Fresh business resources are headed your way! 8,000 && 101,000\\ From a payroll standpoint, this type of compensation is harder to administer. 5 Park N Fly presently has net income of $3.5 million and 1 million shares of common stock outstanding. Cost of Administration: The cost of administration of straight salary plan is less than that of straight commission plan. Salaried individuals who earn less than $23,660 per year often qualify for additional compensation, including overtime pay, per the FLSAs standard for non-exempt salaried employees. If its part of their contract, salespeople can continue to receive commissions even after theyve left the company. . Salesmen Reward: Under the straight salary method, salesmens rewards are not matched with their efforts. The most common exemptions are executive, administrative, and professional exemptions. channeled in directions consistent with the overall strategic role of the salesforce within the firm. Per the IRS definition, the contractor is in control of how the work gets done, so there is a lot of freedom. Murray Kiser operates his own catering service. , a pet-friendly working environment, etc.). 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. Dana Sparks has been a professional writer since 1990. Which of the following is not an advantage of combination plans? This compensation type tends to attract fewer people since there is no secure base pay. Contractors are required to find health insurance and retirement plans on their own. But straight commission method does not assure any minimum income to the salesmen. But when that same group opened up about things that weren't essential to the negotiation, 59 percent were able to strike a deal. If an employee is required to work on a holid ay as a regularly scheduled work day, . Straight salary plans often do not provide strong incentive for extra effort. It is critical that companies using this type of system have good metrics in place for tracking sales so they can fairly and accurately calculate commissions. Salespeople are usually paid on a straight salary compensation, in which there is no opportunity to earn incentives. Topical articles and news from top pros and Intuit product experts. manner. Good salespeople can continue to receive residual commission ever after they leave the company through negotiation. Nevertheless, salary compensation plans are appropriate in a number of situations. \text{Symbol} & \text{Stock} & \text{High} & \text{Low} & \text{Last} & \text{Change} & \text{Volume} & \text{High} & \text{Low}\\ \hline No two compensation plans are alike. \\ According to a survey of sales executives reported in the text, the most popular sales incentive is. more points. the following except. Employees who like working in sales but also in a team environment will be attracted to such compensation, as it takes the pressure off the individuals performance. This type of sales compensation plan is employed in companies which prohibits direct sales. If an employee makes no sales during a month, he doesnt get paid. 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. 1. Under Straight salary method, a salesman is paid remuneration on time basis. A major objective of a well-designed compensation package is to: 1. 7. As the various salesmen on a particular scale of pay are paid the same remuneration, it avoids jealousy among the salesmen. 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. Person B works for an NFP and is part of a salary packaging program. 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 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. 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. 5. Provide a mix of both compensation and noncompensation rewards comparable to other firms. \\ However, successful salespeople tend to make a lot of money with commission than with a salary plus commission job. Recommend a plan to the board of directors. The importance of the salesperson's personal skills in making sales is slight. The ideal compensation plan motivates salespeople to achieve their own and the company's objectives. Some of this is likely due to a generational shift in what employees are really looking for. How much you spend on salaries often has little to do with your profits. Companies looking for a simple or consistent payroll solution without any surprise payroll expenses will likely build their compensation offering around straight salaries. 5. Working as a contractor definitely has its benefits. 2. as well as U.S. securities. \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 The introduction of HR technology has revolutionized the way HR departments operate. Your positive feeling towards inclusion at work should be synced with your actions on making a change. If a salesperson earns more commissions than he was paid, he keeps the extra money. compensation plans are used as a way to motivate employees. Which of the following is/are most likely to be among them? &&&&&&&& -26,000\\ Management can direct Salesforceinto various activities more easily. 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. When it comes to employee compensation, there isnt a one-size-fits-all solution. Employees earning salary plus commission will have higher income tax rates than a self-employed agent. \begin{array}{|l|l|c|c|c|c|c|c|c|} \hline This can either be done through direct contact with t Are you ready for a pay raise? Can I Get Fired For Leaving A WhatsApp Group? i) Beneficial for industries which prohibits direct sales. Under this plan, companies compensate its employees entirely on the profits made by the business. is considered a serious offense, which, if detected, often leads to termination of employment. 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. 2. Straight salary method of remuneration is simple. Benefit packages amount to a negligible portion of the cost of keeping a salesperson in the field. 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. The tools and resources you need to take your business to the next level. A per diem expense plan pays the salesperson for all reported expenses. They receive fixed sums of money at regular intervals (usually each month). Some disadvantages of straight salary compensation may include reduced retention and high turnover if employees dont see opportunities to increase their pay. Such a plan is quite common in the services industry as well as in the industrial goods sector. In this compensation structure, the employee receives a set hourly rate, plus a percentage of their sales. Employees may be confused as to how pay is calculated, so transparency is important. Are you ready for a pay raise? Grant cites a Stanford and Kellogg study that found when a group of people only shared their email and names during negotiations, they struck up agreements 40 percent of the time. Although quite popular, salary compensation plans have some disadvantages. Straight salary method of remuneration Meaning, Suitability, Advantages, Disadvantages. Minimum Income: Straight salary method assures a minimum income to the salesmen. \text{Kentucky} & \text{71} & \text{Notre Dame} & \text{63} & \text{8}\\ Different companies offer different compensation plans to their sales representatives- the straight salary plan being one of the simplest. Employers are also required to pay employees theminimum wage, which can vary depending on their states minimum wage. Applicable laws may vary by state or locality. Based on this information, which salesperson compensation plan would work best? The content on MBA Skool has been created for educational & academic purpose only. The independent contractor category is broad and includes everything from lawn services to sales to doctors and lawyers. For example, since the pay of salaried salespeople is not directly related to performance, some of them may not make all of their calls or give the firm "a full day's work for a day's pay." Any re-adjustments in sales territories or management policies can be easily carried out under this system without much resistance from the salesmen, as the salesmen will be paid the same remuneration, irrespective of sales territories. Sales Management Insight: Sales Commission Plans. finds the job to be inherently rewarding. Companies that pay their employees using PMR-based compensation will want to offer additional benefits to make up for their potentially low liquidity. Which of the following is not a factor to be considered when developing a commission-only plan? If the nonselling administrative duties of the salesperson are of major importance, this compensation Due to the complexity and compliance issues involved, very few companies offer equity or stock. &&\textbf{\textsf{Assets}}\\ Get the definitive guide to employee compensation packages and benefits in this comprehensive QuickBooks resource written by payroll expert Katey Maddux. 1. A salesperson makes the initial contact and sets the stage for the sale, while others such as product experts or management personnel are brought in to help him close the deal. scores more than 90 points. $$ You are the sales manager of a large, multi-product company. 6. This pay plan is the: Combination plan (Base salary + performance based commission). \underline{\ \ \ \ \ \ \ \ \ \ \ \ }&& \underline{-3,000} && \underline{\ \ \ \ \ \ \ \ \ \ \ \ }\\ Employers have to think about who their target employee is and what that employee is looking for. This system safeguards the interests of the consumers also. The ATO considers this $80,000 taxable income. Salaried employees receive an equal portion of their annual compensation every week. Which of the following is not an advantage of the commission compensation plan? 40 Questions to Ask Before You Accept A Job Offer. However, a straight salary plan also has its own advantages. A job like this is more likely to have flexible working hours or the ability to work from home. As it assures a certain minimum income (the living wage) to the salesmen regularly, it creates a feeling of security in the minds of the salesmen. 2. \textbf{\textsf{Accounts}} && \textbf{\textsf{Murray Kiser,}} && \textbf{\textsf{Murray Kiser,}} && \textbf{\textsf{Fees}} \hspace{6pt}\\ Which of the following is not true regarding the design of a global salesforce compensation system? For example, if you work 42.5 hours in a week, you earn 40 hours of pay at your hourly base rate and 2.5 hours at 1.5 times your hourly base rate. In most companies, the base pay is determined by the workers job title and job role. What is the amount of net increase in owners equity during the month? Employers are also required to pay employees the. Is good for a financially weak company. virtually automatic, this form of commission rate would be appropriate: An example of a selling situation requiring a commission split would be. Defined by the FLSA, tipped employees are those who receive more than $30 per month in tips. You also decide to pay your salespeople with the most common type of compensation plan among companies. Because her income is stable, planning and managing her personal finances is easier. 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 is one of the most reliable types of compensation plans. Your paycheck is based on a specific percentage of the sales that you are able to generate. Is it just monetary? 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. It provides stability of earnings without wide fluctuations. \end{array} No assurance is given that the information is comprehensive in its coverage or that it is suitable in dealing with a customers particular situation. If so, an hourly rate with a flexible schedule could be more attractive. tend to produce too many salesforce objectives which are of the crisis-resolution variety. 3. 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). In this situation, employees only receive their bonus if the district, division, or even continent hits its sales goals. the requirement that expenses be charged and the bills sent directly to the company for payment by the accounting department. Your base pay provides a steady income during seasons where commission may be more difficult to earn. 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. \text{Oklahoma State} & \text{72} & \text{Texas} & \text{66} & \text{6}\\ In territory value compensation (TVC), payment is calculated based on the territory volume at the end of a period. Employees who receive it are considered nonexempt by the FLSA, meaning their compensation is regulated. Paycheck calculator for hourly and salary employees. The straight salary plan is one of the simplest compensation plans that companies offer to their employees, particularly sales representatives. Each line designated by a number indicates the effect of a transaction on the equation. Salespeople should compete in teams with each member of the team making a contribution to the group's total goal. WinningTeamPointsLosingTeamPointsWinningMarginArizona90Oregon6624Duke85Georgetown6619FloridaState75WakeForest705Kansas78Colorado5721Kentucky71NotreDame638Louisville65Tennessee623OklahomaState72Texas666Purdue76MichiganState706Stanford77SouthernCal6710Wisconsin76Illinois5620\begin{matrix} 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. 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). They want to know precisely how much money they're going to make each month and to feel as though that income is dependable. Example: Each rep in your company earns a straight salary of $75,000 a year, or $1,440 a week (gross). Everything you need to prepare for and have a successful holiday season. Another advantage of this pay structure is that it helps in attracting more talent . not, explain. \end{array} 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. 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. 4. If you have less experience or education than other job applicants, taking a salaried . This type of compensation plan puts less pressure on individuals and fosters team-building. 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). \textbf{\textsf{Cash}} & \bm{+} & \textbf{\textsf{Supplies}} & \bm{+} & \textbf{\textsf{Land}}\\ \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{-3,000}\\ Copyright 2023 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. It is not clear that offering unlimited opportunities to earn higher pay will always be an effective method for continued salesperson motivation. The most serious disadvantage of a straight-salary compensation plan is. Operating costs are minimized during slack selling periods. It is a highly attractive model, especially to start-ups who are seeking to penetrate a specific territory. ____________ is the easiest plan to administer and budget for. A salesperson who is intrinsically motivated. 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.