advantages of straight salary plan

30,000 && 4,000 && 75,000\\ they contribute little to company loyalty, resulting in potential salesforce control problems. Which of the following is not true regarding the design of a global salesforce compensation system? If an employee is required to work on a holid ay as a regularly scheduled work day, . virtually automatic, this form of commission rate would be appropriate: An example of a selling situation requiring a commission split would be. \\ Although quite popular, salary compensation plans have some disadvantages. Commission-only compensation can be valuable for employers because top performers get the most money. A fixed dollar amount is paid for each day or week in the field. But straight commission method distinguishes between efficient and inefficient salesmen. In many companies, basics plus bonus-based compensation plans are used as a way to motivate employees. \hline It could reduce retention and increase turnover. Different companies offer different compensation plans to their sales representatives- the straight salary plan being one of the simplest. Accounting and bookkeeping basics you need to run and grow your business. \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}}\\ Example: Each rep in your company earns a straight salary of $75,000 a year, or $1,440 a week (gross). Straight salary refers to the basic salaries and wage given to the worker. \textbf{\textsf{Accounts}} && \textbf{\textsf{Murray Kiser,}} && \textbf{\textsf{Murray Kiser,}} && \textbf{\textsf{Fees}} \hspace{6pt}\\ It is easy to calculate. \hline Advantage: Straight-Forward Budgeting For you as a business owner, paying fixed salaries allows you to precisely know how much you're going to pay out each month in labor costs and to budget accordingly. Your boss thinks you should implement a salary plus commission plan with an incentive ceiling. Katey Maddux is a paddle boarder, music lover, Zumba instructor, and Founder and CEO of. Which of the following statements regarding changes in the reward system is false? Save my name, email, and website in this browser for the next time I comment. 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. 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 Cost of Administration: The cost of administration of straight salary plan is less than that of straight commission plan. It is often used in direct sales industries and multi-level marketing (MLM) firms that work with independent contractors. Currently editor at The HR Digest Magazine. direct salespeople's behavior toward the attainment of organizational objectives. Because employee base pay is often low (employers can pay as low as $2.13 hour, which means the entire paycheck can go to taxes or withholding), making a livable income can be tough without significant sales. It is usually easy to design pay plans that fully meet the goals and needs of the firm, customers, and salespeople. Design the plan centrally and dictate to local countries. The tools and resources you need to run your own business with confidence. You now require the sales force to sell $35,000 worth of product each month to make a commission. a supportive sales management leadership style. Intuit Inc. does not have any responsibility for updating or revising any information presented herein. Straight salary plans are not popular with salespeople because: They don't provide strong incentives for extra effort. Many appreciate the fallback stability of the base salary paired with performance incentives. determine the relative amounts to be paid in salary, commission, and bonus. Which of the following is not mentioned in the text as a challenge to sales managers attempting to adjust \text{Louisville} & \text{65} & \text{Tennessee} & \text{62} & \text{3}\\ that they offer little financial incentive to perform past a merely acceptable level. 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. Your base pay provides a steady income during seasons where commission may be more difficult to earn. It assures a steady minimum income to the salesmen. \begin{array} {rcrcr} Which of the following is not a guideline recommended in the management of motivation? Employees need not be scheduled for the same number of hours each week. Sales contests will continue to be an important tool for achieving expedient results. a. salaries are a fixed cost to the firm and thus tend to decrease proportionally as sales increase. 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. By creating a feeling of security in the minds of the salesmen, it maintains high morale among the sales force. \\ An employee who works only on salary has little external motivation to go above and beyond. A major objective of a well-designed compensation package is to: 1. The salesperson experiences a high level of security with a salaried sales position. This type of compensation is well-suited for employees who work in a team-based culture. As the Vice President of Sales for a new startup company, you decide to hire and train your own field sales force. Formal recognition programs have a better chance of success if sales managers do all of the following 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. For example, consider a salesman who frequents various retail stores or department stores to check inventory or take orders for replenishment. What is important here is building a close relationship with the retailer and satisfying the customers needs. \text{T} & \text{AT&T} & \text{37.50} & \text{30.97} & \text{37.12} & \text{-0.01} & \text{22,009,008} & \text{37.50} & \text{37.06}\\ \hline Purely paid-by-commission plans can create an unfriendly, competitive environment within teams. 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). For each frequency distribution, suggest "nice" bins. 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. except. This type of compensation refers to a set hourly amount without additional performance-based income. Which of the following conditions would indicate to the sales manager that the proportion of the 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 helps HR professionals identify issues with their talent management and employment law. Quizzes test your expertise in business and Skill tests evaluate your management traits. These have a significantly higher (pre-tax) contribution limit than company IRAs. 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. What was the difference between the day's high and low for one share of Southern Copper? Another disadvantage is the lack of benefits. The major disadvantage is that the salespersons may not feel motivated and would only complete the minimum requirements. Employees who receive it are considered nonexempt by the FLSA, meaning their compensation is regulated. Get help with QuickBooks. Which of the following is an advantage of a straight-commission compensation plan? He holds a Bachelor of Science in marketing from York College of Pennsylvania. \text{Bal.} \text{Kentucky} & \text{71} & \text{Notre Dame} & \text{63} & \text{8}\\ Each line designated by a number indicates the effect of a transaction on the equation. Your email address will not be published. Working as a contractor definitely has its benefits. Part B: As a retail sales manager of a large superstore, one of your responsibilities is to train the newly hired employees. 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. Today, January 26, 2004). not, explain. 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. 7. Overall compensation and rewards increase with the use of team selling. 5. The sales teams support each other to reach a common goal. All of the above. The directors are considering three financing plans. Commission-only compensation plans are usually simpler and easier on payroll than compensation types combined with hourly or salary pay rates. For more information on your states minimum wage requirements, read up on minimum wage requirements or visit the Department of Labors website. Each time a commission check is cut you have the satisfaction of knowing that it's due to something positive. Help Miller rank the top three cities that BIA should consider as its new site for servicing aircraft. Incentives to Salesmen: Straight salary method does not provide any incentive to the salesmen to do hard work. They may have less vacation time or even zero paid vacation time. \end{array} One benefit, from the employers perspective, is the company only pays commissions when the top line improves, so its beneficial from a profitability standpoint. Let's explain the benefits with a clear example of an unpackaged salary versus an FBT exempt salary package. It has been reviewed & published by the MBA Skool Team. Employers may use this type of compensation to keep payroll expenses low while still motivating employees to perform. A large direct sales company such as Avon would most likely compensate their salespeople in this nonfinancial reward: All of the following are steps suggested for facilitating a sense of accomplishment in the salesforce Increase sales and revenues. 11. Whos using straight salary compensation? Salesmen Reward: Under the straight salary method, salesmens rewards are not matched with their efforts. If its part of their contract, salespeople can continue to receive commissions even after theyve left the company. It tends to eliminate or reduce high-pressure selling, i.e., pushing items which are not needed by the customers. Salespeople may also be paid on a straight salary basis in which there is no opportunity to earn incentives. is considered a serious offense, which, if detected, often leads to termination of employment. as well as U.S. securities. Once the salesperson has established himself in the area, the company can then switch to a performance-based compensation plan if desired. +35,000\\ Compensation rewards might include all of the following except. This compensation type tends to attract fewer people since there is no secure base pay. In this sense, compensation is a counterbalance. 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. Among the drawback(s) you will discuss include: You have read a "want ad" in the latest edition of Marketing News. , a pet-friendly working environment, etc.). 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. manner. Once you own property, you should take steps to protect it from loss, theft, and damage. Employers are often hesitant to use this type of compensation, as payroll expenses can be high or unpredictable. 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 Salary plus commission is a balance of both stability and performance-based income. Benefit packages amount to a negligible portion of the cost of keeping a salesperson in the field. Although quite popular, salary compensation plans have some disadvantages. estimate the percentage of all NCAA games in which the winning team scores 84 or Match the terms with the definitions. -7,200\\ There is no additional performance or sales-based income added to the employees compensation. Employees are guaranteed to receive at least base salary to pay the bills, even during a time period when their sales are low. Profit margin is one of the most popular types of compensation used by start-up companies. Copyright 2023 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. Nevertheless, salary compensation plans are appropriate in a number of situations. 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 Management Dictionary covers over 2000 business concepts from 5 categories. 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). In designing plans one must balance the goals of the firm, as well as the needs of the sales force and customers. Salary programs are most appropriate when it is difficult to relate the efforts of individual salespeople to the size or timing of a sale. 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 These plans often include a straight salary income for training periods or during low seasons. This is a very important distinction, as it determines who pays the taxes (the worker, not the employer) and to what standard an employer is held. the following except. 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? You also decide to pay your salespeople with the most common type of compensation plan among companies. Benefits or Advantages A regular income gives the salesman a good degree of security. Fresh business resources are headed your way! Employees may be confused as to how pay is calculated, so transparency is important. When there are considerable seasonal variations in the sales made by the salesmen. Changing from a straight salary plan to a combination salary plus commission plan provides a number of benefits. The major drawback to salary plus commission plans is that they are more expensive and more costly to administer. \begin{array}{|l|l|c|c|c|c|c|c|c|} \hline It can also be beneficial if a firm is entering a new market or location. Does not provide security, so the reps will work harder. plan is recommended: Advantages of straight-salary compensation plans include all of the following except. One regulation is employers are required to, at 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). This article has been researched & authored by the Business Concepts Team. 5. . Sales Costs: Under the straight salary method, sales costs are not matched with the sales.

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