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. But under the straight commission method, sales costs are matched with sales. Straight Salary Straight salary sales compensation plans aren't very common, but they do have a place in some organizations. 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. 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. Which of the following is not a guideline for optimizing the use of sales contests? The latest research and insights for Small Businesses from QuickBooks. Today, January 26, 2004). The most serious disadvantage of a straight-salary compensation plan is. than to older salespeople: When a sales manager assures salespeople that they fulfill a critical role in revenue production and other This is a very broad category of compensation. Different companies offer different compensation plans to their sales representatives- the straight salary plan being one of the simplest. Get the definitive guide to employee compensation packages and benefits in this comprehensive QuickBooks resource written by payroll expert Katey Maddux. Security and collaboration: The straight salary plan provides a more stress-free working environment for the salespersons. Profit margin/revenue-based compensation, Whos using profit margin/revenue-based compensation, Benefits of profit margin/revenue-based compensation, Disadvantages of profit margin/revenue-based compensation, Whos using residual commission compensation, Benefits of residual commission compensation, Disadvantages of residual commission compensation, Pros and cons of salaried versus hourly compensation, Pros of hourly compensation for employees, The freedom to change work schedules in accordance with other schedules, The opportunity to work more hours to make more money, Its often easier to get a new job if the current one isnt a good fit, Cons of hourly compensation for employees, Pros of hourly compensation for employers, Employers can increase or decrease hours based on heavy or slow seasons, Depending on how many employees are on the payroll, employers may not be required to provide benefits, including health insurance or, Cons of hourly compensation for employers, Payroll can be more complex and difficult to calculate if using multiple rates, Increased training and hiring expenses (as a result of high turnover), Pros of salary compensation for employees, Consistent hours and income create more security, Cons of salary compensation for employees, If working for a straight salary, better performance doesnt constitute higher pay, Switching between jobs can be more difficult, as theres often a more intense hiring process, Pros of salary compensation for employers, Salaried employees can be more loyal than hourly employees, Often a higher level of talent or education, Cons of salary compensation for employers, Payroll expenses are fixed, even if profitability decreases, It can be more expensive to attract top talent, Why employee classification is so important. \\ 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." \text{Purdue} & \text{76} & \text{Michigan State} & \text{70} & \text{6}\\ No two compensation plans are alike. For more information on your states minimum wage requirements, read up on minimum wage requirements or visit the Department of Labors website. 30,000 && 4,000 && 75,000\\ We dont want you to miss anything. A change from straight commission to straight salary. Sales Management Insight: Sales Commission Plans. Your ultimate goal is to control selling expense and provide extra rewards for added results. 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. Prepare an analysis to determine which plan will result in the highest earnings per share of common stock. Many appreciate the fallback stability of the base salary paired with performance incentives. How much do employees cost beyond their standard wages? Offer your support. This offers the security of a salary with the greater earning potential of commission. And because there is no financial security that kicks in if sales arent made, those who dont earn enough leave or burn out quickly. If its part of their contract, salespeople can continue to receive commissions even after theyve left the company. Match the terms with the definitions. 9. For example, consider a salesman who frequents various retail stores or department stores to check inventory or take orders for replenishment. So what is compensation? Resources to help you fund your small business. \textbf{\textsf{Accounts}} && \textbf{\textsf{Murray Kiser,}} && \textbf{\textsf{Murray Kiser,}} && \textbf{\textsf{Fees}} \hspace{6pt}\\ The tools and resources you need to get your new business idea off the ground. This can lead to high turnover, a need for more recruitment resources, and higher training costsall of which cuts into potential bottom-line savings. \text{Oklahoma State} & \text{72} & \text{Texas} & \text{66} & \text{6}\\ https://quickbooks.intuit.com/oidam/intuit/sbseg/en_us/Blog/Photography/Stock/b865e494cb3a98c7739d65e0c9442b1c.jpg, https://https://quickbooks.intuit.com/r/payroll/employee-compensation-benefits-guide/, The complete guide to employee compensation and benefits | QuickBooks, In my experience, both in the corporate (salary) and retail (hourly) space, an employee compensation plan encompasses salary or, How to find a balance between employee pay and benefits, Companies often feel they can justify a lower salary or rate if they include a more robust benefits package. 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 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. Following are the advantages of the straight commission plan: Pay relates directly to performance and results achieved. Intuit Inc. does not have any responsibility for updating or revising any information presented herein. 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. The straight salary plan proves advantageous to both the salesperson and the management. Terms and conditions, features, support, pricing, and service options subject to change without notice. If he earns less in commissions, he must pay the remainder back to the company. direct salespeople's behavior toward the attainment of organizational objectives. Base salary + sales commission-based pay. &&&&&& 35,000\\ \\ Recommend a plan to the board of directors. Once the person has established himself in the area, the company can switch to performance-based salary. Part B: As a retail sales manager of a large superstore, one of your responsibilities is to train the newly hired employees. Information Technology Project Management: Providing Measurable Organizational Value, Service Management: Operations, Strategy, and Information Technology, John David Jackson, Patricia Meglich, Robert Mathis, Sean Valentine, Chapter 10 - Motivating and Satisfying Employ. 7. 4. Part B: As a retail sales manager of a large superstore, one of your responsibilities is to train the newly hired employees. It could reduce retention and increase turnover. 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. Millennial Accounting primarily serves two nichesreal estate and property managementand is on a mission to serve, inspire, educate, and problem-solve. It is a highly attractive model, especially to start-ups who are seeking to penetrate a specific territory. However, a straight salary plan also has its own advantages. The tools and resources you need to run your business successfully. There is no additional performance or sales-based income added to the employees compensation. Straight salary plans often do not provide strong incentive for extra effort. 100% (2 ratings) FALSE because straight salary can make all sales reps equivalent individuals, which is best when th . 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. As the Vice President of Sales for a new startup company, you decide to hire and train your own field sales force. They should be made during recessionary periods. 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. Are you ready for a pay raise? Check to see how the salespeople would fare under the new plan by using sales figures from the previous year and calculating expecting compensation. The company sets a minimum and maximum range that can increase, decrease or remain the same, depending on the workers performance. 7. Advantages of Straight Salary Method 1. 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. Provide a mix of both compensation and noncompensation rewards comparable to other firms. A straight salary plan can be advantageous in certain situations. Which one of the following statements regarding global compensation is false? except. Subscribe to our newsletter and stay updated on the latest HR news and trends. Employers are often hesitant to use this type of compensation, as payroll expenses can be high or unpredictable. Sales jobs consisting primarily of Account Management involve a greater account servicing component and are therefore better suited to a primarily __________. Employers may use this type of compensation to keep payroll expenses low while still motivating employees to perform. Find articles, video tutorials, and more. 10. 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). The straight salary plan is one of the simplest compensation plans that companies offer to their employees, particularly sales representatives. This type of environment tends to foster a sense of camaraderie and can be good for company culture and morale if done well. Murray Kiser operates his own catering service. \text{Stanford} & \text{77} & \text{Southern Cal} & \text{67} & \text{10}\\ The commission can include (but is not limited to) a percentage of personal sales, a percentage of team sales, bonuses, or overtime pay. Employees who receive it are considered nonexempt by the FLSA, meaning their compensation is regulated. Working as a contractor definitely has its benefits. \text{Bal. Increase sales and revenues. Similar to hourly employees, workers who are paid with this type of compensation are usually governed by the FLSAs nonexempt requirements and earn overtime. Employers have to think about who their target employee is and what that employee is looking for. In addition, employers also enjoy the flexibility of being able to increase or decrease employee hours seasonally or to reflect sales growth.a. The nine different types of compensation packages include: This type of compensation refers to a set annual amount, divided by the years pay periods to get a pay rate weekly, every two weeks, or monthly. That means, there will not be much bad debts. You are the sales manager of a large, multi-product company. But straight commission method distinguishes between efficient and inefficient salesmen. If your family does not have a complete home inventory, encourage your parents or other adults with whom you live to create one. The importance of the salesperson's personal skills in making sales is slight. has very specific requirements for classifying and paying employees. The primary benefit of salary-plus-commission plans is they allow the compensation program to be tailored to the needs of a particular firm. Benefit packages amount to a negligible portion of the cost of keeping a salesperson in the field. Your earning potential is unlimited. \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{-3,000}\\ This type of compensation plan is every salespersons dream. As the various salesmen on a particular scale of pay are paid the same remuneration, it avoids jealousy among the salesmen. Contractors are required to find health insurance and retirement plans on their own. Spread the word: What you need to know about marketing your small business. Employees who prefer to set their own schedules or be their own boss often thrive in commission-only environments. 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). Travel and entertainment costs are a relatively insignificant portion of a salesperson's compensation package. A straight salary can greatly benefit someone who is transferring to a new territory. Your positive feeling towards inclusion at work should be synced with your actions on making a change. Corporate industries and IT sales, for example, often use this type of compensation when creating bonus plans. 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 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