advantages of straight salary plan

compensation plans are used as a way to motivate employees. It can also be beneficial if a firm is entering a new market or location. A sample of 10 NCAA college basketball game scores provided the following data (USA Hence, this concludes the definition of Straight Salary Plan along with its overview. Solved An advantage of the straight salary plan for | Chegg.com 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. And because there is no financial security that kicks in if sales arent made, those who dont earn enough leave or burn out quickly. The ideal compensation plan motivates salespeople to achieve their own and the company's objectives. Salesmen have the greatest. You can tweak the budget annually by deciding whether the business has flourished enough to offer merit raises. 2. When the sales effected by the individual salesman cannot be isolated (i.e., when the sales are made collectively by two or more salesmen). The only downside with territory volume compensation plan is that it can lead to hostility between co-workers if certain members feel that effort isnt equally divided. The workplace catchphrase you need to know. 2. Straight salary plans are not popular with salespeople because: They don't provide strong incentives for extra effort. 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. $$ \end{array} Teams in human resources, graphic design, or other supportive departments will often use straight salary compensation. 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. It is often used in direct sales industries and multi-level marketing (MLM) firms that work with independent contractors. Straight Salary Method of Remuneration | Meaning | Suitability | Merits | Demerits, Salesmanship | Meaning | Features | Objectives, Arguments in favor of Social Responsibility of Business, Business Enterprise Meaning | Public | Private | Joint, 10 Most Important functions of a Group Leader, Factors to be Considered in Planning Factory Building, Reasons for Governments Intervention in Private Business, Factors Influencing Salesmen Remuneration Plan, Organizational Factors Responsible for Resistance to Change, Avoidable and Unavoidable causes of Labour Turnover, 5 Important Classification of Business Environment, Under what circumstances a Pvt company be, Purchase Department | Purchase Officer | Qualification, 7 Arguments against Social Responsibilities of Business, Accountlearning | Contents for Management Studies |. Plan B is to issue 100,000 shares of common stock. The major disadvantage is that the salespersons may not feel motivated and would only complete the minimum requirements. In this situation, employees only receive their bonus if the district, division, or even continent hits its sales goals. Chapter 12 Flashcards | Quizlet It could reduce retention and increase turnover. However, a straight salary plan also has its own advantages. We provide third-party links as a convenience and for informational purposes only. The tools and resources you need to run your business successfully. Your national sales force is divided into eight regions, though the Mid-Atlantic region is currently understaffed (sales volume there has always been low). Companies are increasing incentives for foreign-based employment. Everything you need to prepare for and have a successful holiday season. Resources to help you fund your small business. Your paycheck is based on a specific percentage of the sales that you are able to generate. Did your choice agree with Sturges' Rule? How to find funding and capital for your new or growing business. The directors are considering three financing plans. 1. 4. But under the straight commission method, sales costs are matched with sales. 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. -2,000\\ Dana Sparks has been a professional writer since 1990. 2. She helps HR professionals identify issues with their talent management and employment law. Salary Plus Commission: Advantages and Disadvantages Intuit Inc. does not warrant that the material contained herein will continue to be accurate nor that it is completely free of errors when published. The sales numbers are added up and all commissions are split equally among all sales professionals. Your positive feeling towards inclusion at work should be synced with your actions on making a change. bell-shaped distribution. 2. The straight salary plan proves advantageous to both the salesperson and the management. 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. As the Vice President of Sales for a new startup company, you decide to hire and train your own field sales force. Defined by the FLSA, tipped employees are those who receive more than $30 per month in tips. Straight salary method of remuneration is simple. They receive fixed sums of money at regular intervals (usually each month). 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. Long ago, we wrote about the importance of a compensation plan in an organization. The reward system practiced by the majority of consumer and industrial firms is, Industries that have traditionally used a straight-commission-based compensation pay plan include all of 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. You also decide to pay your salespeople with the most common type of compensation plan among companies. Straight salary offerings can also be good for attracting new talent that's concerned with stability. Example: Each rep in your company earns a straight salary of $75,000 a year, or $1,440 a week (gross). Summary financial data for February are presented in equation form as follows. Employees who are eager and top-performing are often attracted to this type of commission, however, since they know they can survive solely on their skills and experience. When the salesmen are new to the job (i.e., for remunerating the newly appointed salesmen.). Each line designated by a number indicates the effect of a transaction on the equation. MBA Skool is a Knowledge Resource for Management Students, Aspirants & Professionals. This type of sales compensation plan is employed in companies which prohibits direct sales. the working capital requirements are lessened with the straight-salary compensation plan. Your email address will not be published. $$ Cost of Administration: The cost of administration of straight salary plan is less than that of straight commission plan. The company sets a minimum and maximum range that can increase, decrease or remain the same, depending on the workers performance. Under this system, rewards are not matched with efforts. Provide an opinion of which type of compensation plan you would prefer as a professional salesperson. The firm is looking for a Vice President for sales and promotion. Running payroll for hourly employees, as opposed to salaried employees, can also be significantly cheaper, making it easier for companies to hit financial goals. \hline Expert Answer. 11 Main Types of Sales Compensation Plans (With Examples) 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. \text{Kentucky} & \text{71} & \text{Notre Dame} & \text{63} & \text{8}\\ Hourly plus commission compensation does have its disadvantages as well. 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. The Advantages of a Straight Salary Plan for Salespeople One of your first tasks is to evaluate the level of compensation for your sales force. nonfinancial reward: All of the following are steps suggested for facilitating a sense of accomplishment in the salesforce These can range from monetary benefits (like extrapaid time off, holiday pay, and parental leave) to lifestyle benefits (like flexible working hours,the ability to work from home, a pet-friendly working environment, etc.). . It does not distinguish between efficient and inefficient salesmen, as the same remuneration is paid to both efficient and inefficient salesmen. 4. Murray Kiser operates his own catering service. Whos using straight hourly compensation? An employee who works only on salary has little external motivation to go above and beyond. Which of the following is not a guideline for optimizing the use of sales contests? One advantage of hourly pay is your eligibility for overtime. WinningTeamPointsLosingTeamPointsWinningMarginArizona90Oregon6624Duke85Georgetown6619FloridaState75WakeForest705Kansas78Colorado5721Kentucky71NotreDame638Louisville65Tennessee623OklahomaState72Texas666Purdue76MichiganState706Stanford77SouthernCal6710Wisconsin76Illinois5620\begin{matrix} When it comes to employee compensation, there isnt a one-size-fits-all solution. Some of this is likely due to a generational shift in what employees are really looking for. Employees like it because it rewards those who work hard. If an employee makes no sales during a month, he doesnt get paid. The importance of the salesperson's personal skills in making sales is slight. 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. This is a primary method for compensating independent sales agents. than to older salespeople: When a sales manager assures salespeople that they fulfill a critical role in revenue production and other You have a meeting with her to outline the drawback(s) of this type of plan . Paycheck calculator for hourly and salary employees. Salaried workers who earn more than $23,660 per year are considered exempt under the Fair Labor Standards Act (FLSA). Sales Costs: Under the straight salary method, sales costs are not matched with the sales. Are you ready for a pay raise? Fringe Benefits and Salary Plan based upon the employee's rate of pay immediately preceding retirement. However, the$5 million that the business needs for growth cannot be raised within the family. This can lead to high turnover, a need for more recruitment resources, and higher training costsall of which cuts into potential bottom-line savings. All of the following are typical reimbursable expense items except. It tends to eliminate or reduce high-pressure selling, i.e., pushing items which are not needed by the customers. Some of these jobs also have flexible schedules, which can be beneficial to employees. Salary plus commission is a balance of both stability and performance-based income. The most serious disadvantage of a straight-salary compensation plan is. Although quite popular, salary compensation plans have some disadvantages. a. The primary benefit of salary-plus-commission plans is they allow the compensation program to be tailored to the needs of a particular firm. For post-Depression-era baby boomers, the security of a steady salary is important. In this situation, employers have to pay overtime, despite the employee being salaried. 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. By clicking Submit, you agree to permit Intuit to contact you regarding QuickBooks and have read and acknowledge our Privacy Statement. Accounting and bookkeeping basics you need to run and grow your business. Each is then rated on 12 factors, as shown in the table below. \end{array} Intuit Inc. does not have any responsibility for updating or revising any information presented herein. Straight salary method of remuneration is simple. PMR is common in sales and is good for startups with low liquidity. Similar to hourly employees, workers who are paid with this type of compensation are usually governed by the FLSAs nonexempt requirements and earn overtime. The most common exemptions are executive, administrative, and professional exemptions. Each time a commission check is cut you have the satisfaction of knowing that it's due to something positive. Payroll essentials you need to run your business. When the work done by the salesmen cannot be measured satisfactorily. To implement a new or modified reward system, sales managers should do all of the following except. manner. Employees earning salary plus commission will have higher income tax rates than a self-employed agent. Are they just trying to pay their way through college? Is your team struggling with burnout and a lack of fulfillment at work? The Pros and Cons of Different Sales Compensation Plans Management can direct Salesforceinto various activities more easily. What is the amount of net increase in owners equity during the month? \hline\\ Its critical for employers to keep this in mind when deciding between different types of compensation packages. Applicable laws may vary by state or locality. The major drawback to salary plus commission plans is that they are more expensive and more costly to administer. Salesmen Reward: Under the straight salary method, salesmens rewards are not matched with their efforts. PMR-based compensation often encourages loyalty among employees, but it will also require long-term incentives to retain talent. The economy has entered a period of recession, and even the Administration's economists predict that it will remain so for at least three more quarters. Straight Salary Compensation. Plan A is to borrow at 6%. Lavish formal recognition programs can provide all of the following benefits to a salesforce except. \end{matrix} The commission can include (but is not limited to) a percentage of personal sales, a percentage of team sales, bonuses, or overtime pay. According to the text, which of the following is not one of the rewards typically offered to salespeople? Person A receives a salary of $80,000. The directors, who strongly wish to retain family control of the company, must consider issuing securities to outsiders. , LLC in Miami, Florida. \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{-3,000}\\ 30,000 && 4,000 && 75,000\\ This type of compensation is often used for entry-level jobs or employees working in restaurants, retail, or the service industry, usually in non-management roles. There is no additional performance or sales-based income added to the employees compensation. 6. At the end of the pay period, this prepayment is drawn from how much the salesperson earned in commissions. In this plan, you will pay a straight salary to your employees and no commission, no bonus, and no incentives. But straight commission method distinguishes between efficient and inefficient salesmen. 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. 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. Salespeople are usually paid on a straight salary compensation, in which there is no opportunity to earn incentives. 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. Straight salary plans often do not provide strong incentive for extra effort. 3. According to compensation surveys, ales managers typically earn less than the top reps in their district when sales reps are on an incentive-based plan. Security and collaboration: The straight salary plan provides a more stress-free working environment for the salespersons. If the nonselling administrative duties of the salesperson are of major importance, this compensation Guaranteed income With a salary plus commission plan, you still earn a base salary regardless of how many products you sell. 7. elect to receive regular straight time pay or bank compensatory time at their straight time rate. 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). In territory value compensation (TVC), payment is calculated based on the territory volume at the end of a period. In addition, employers also enjoy the flexibility of being able to increase or decrease employee hours seasonally or to reflect sales growth.a. __________ tends to help give the sales force the needed push to sell complex products or services and can be used to redirect salesperson efforts toward specific product lines; under this plan administrative costs tend to be high. 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. Once you own property, you should take steps to protect it from loss, theft, and damage. Part B: As a retail sales manager of a large superstore, one of your responsibilities is to train the newly hired employees. 7. That means, there will not be much bad debts. As a business owner it can be a challenge to figure out how to compensate employees. The tools and resources you need to manage your mid-sized business. Even if the employee no longer does work on the account, so long as the account continues to perform, the employee will receive a cut of the profits. A valid objective in creating commission-based pay programs is to devise a system that encourages salespeople to sell items that maximize profits of the firm. On the other hard, straight commission method does not give the management sufficient control over the salesmen. The importance of the salesperson's personal skills in making sales is considerable. Before making any decisions, consider what type of compensation you can offer potential employees and what the stipulations of that compensation plan are. Incentives to Salesmen: Straight salary method does not provide any incentive to the salesmen to do hard work. Which of the following is not mentioned in the text as a challenge to sales managers attempting to adjust \text{ } & \text{ } & \text{52-Week} & \text{52-Week} & \text{ } & \text{ } & \text{Sales} & \text{ } & \text{ }\\ She loves training, creating processes, and introducing her clientele to new apps and technology. 9. Required fields are marked *. 5. Disadvantages of straight salary compensation Some disadvantages of straight salary compensation may include reduced retention and high turnover if employees don't see opportunities to increase their pay. So, it can be easily understood by all salesmen. This type of compensation plan is every salespersons dream. Many appreciate the fallback stability of the base salary paired with performance incentives. 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. According to your text, what would you do next? The latest product innovations and business insights from QuickBooks. 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. 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. This system safeguards the interests of the consumers also. It has lower turnover rates. \text{Purdue} & \text{76} & \text{Michigan State} & \text{70} & \text{6}\\ Which one of the following statements regarding global compensation is false? Copyright 2023 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. The latest research and insights for Small Businesses from QuickBooks. Celebrating the stories and successes of real small business owners. Advantages. Which of the following is not a guideline recommended in the management of motivation? When determining the financial compensation mix, the sales manager must. \end{array} Of course, there are exceptions to every rule. 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. The independent contractor category is broad and includes everything from lawn services to sales to doctors and lawyers. Intuit accepts no responsibility for the accuracy, legality, or content on these sites. 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? \underline{\ \ \ \ \ \ \ \ \ \ \ \ }&& \underline{-3,000} && \underline{\ \ \ \ \ \ \ \ \ \ \ \ }\\ Differences between Straight Salary and Straight Commission Method, Business Environment Analysis | Objectives & Process, 5 Important Classification of Business Environment, Localisation of Industries | Meaning, Advantages, Disadvantages, Storage and Warehousing | Meaning, Functions, Advantages, Kinds, Sole Trader Business | Advantages | Disadvantages | Suitability, How do Business Diversification affect performance of, Job Evaluation | Meaning & Definition |, Supervision | Definition | Functions of supervisor, Sole Trader Business | Meaning | Definition, Primary functions of Commercial banks in accepting, RBI | Origin | Objectives | Organization, Concepts of Job Analysis | Meaning, Procedure,, Arguments in favor of Social Responsibility of, Accountlearning | Contents for Management Studies |.

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