The goal of the compensation package is to reward employees for their efforts without putting the firm's profitability in jeopardy. 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. Provide an opinion of which type of compensation plan you would prefer as a professional salesperson. Did your choice agree with Sturges' Rule? 3. Fresh business resources are headed your way! Find articles, video tutorials, and more. Your email address will not be published. 1. \begin{array}{|l|l|c|c|c|c|c|c|c|} \hline Employees earning salary plus commission will have higher income tax rates than a self-employed agent. When the work done by the salesmen cannot be measured satisfactorily. This can either be done through direct contact with t Are you ready for a pay raise? 3. The company sets a minimum and maximum range that can increase, decrease or remain the same, depending on the workers performance. Employees who receive it are considered nonexempt by the FLSA, meaning their compensation is regulated. It is not clear that offering unlimited opportunities to earn higher pay will always be an effective method for continued salesperson motivation. 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. 5. It has lower turnover rates. It assures a steady minimum income to the salesmen. An advantage of the straight salary plan for compensating salespeople is that it: Provides a direct relationship between sales and expenses. -7,200\\ An employee who works only on salary has little external motivation to go above and beyond. Fixed salary paid to salesman at at the end of every month, irrespective of the sales made by him during the month is called Straight Salary. 1. As a business owner it can be a challenge to figure out how to compensate employees. Which of the following is not an advantage of combination plans? 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. Although quite popular, salary compensation plans have some disadvantages. 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. If he earns less in commissions, he must pay the remainder back to the company. What is salary pay? The main differences between the straight salary method and straight commission method are explained below: Straight Salary Method vs Straight commission Method. Let's explain the benefits with a clear example of an unpackaged salary versus an FBT exempt salary package. Is it just monetary? 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. 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. Circumstances: Straight salary method can be used under any circumstances, whereas straight commission method can be used only in cases where the sales made by the salesmen can be measured. The tools and resources you need to manage your mid-sized business. As the name suggests, straight salary compensation is just what you would expect. This $35,000 level is called: Your customer's buying cycle is approximately 2 years and your reps need to invest significant amounts of time understanding their customers. Straight Salary Compensation. salesperson's total pay that is salary should be relatively high? As the remuneration of the salesmen under this method does not depend upon the volume of sales made by them, the salesmen will not be reckless in increasing their sales by selling to every customer on credit. Jobs report: Are small business wages keeping up with inflation? But under the straight commission method, sales costs are matched with sales. In this compensation structure, the employee receives a set hourly rate, plus a percentage of their sales. 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 Intuit accepts no responsibility for the accuracy, legality, or content on these sites. When the salesmen are required to perform some other functions in addition to selling. It is easy to calculate. 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. 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. It can also be beneficial if a firm is entering a new market or location. Salaried employees receive an equal portion of their annual compensation every week. provide salespeople with trips and other rewards. The most serious disadvantage of a straight-salary compensation plan is. that they offer little financial incentive to perform past a merely acceptable level. 2. But straight commission method distinguishes between efficient and inefficient salesmen. For example, consider a salesman who frequents various retail stores or department stores to check inventory or take orders for replenishment. 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. One of your first tasks is to evaluate the level of compensation for your sales force. 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. Advantages to Salesperson: The salesperson feels free from financial uncertainties because of stable income inflow. \underline{\ \ \ \ \ \ \ \ \ \ \ \ }&& \underline{-3,000} && \underline{\ \ \ \ \ \ \ \ \ \ \ \ }\\ , a pet-friendly working environment, etc.). From a morale perspective, they can be more satisfied with their work-life balance since no one is dictating it. Hence, this concludes the definition of Straight Salary Plan along with its overview. This pay plan is the: Combination plan (Base salary + performance based commission). Get the definitive guide to employee compensation packages and benefits in this comprehensive QuickBooks resource written by payroll expert Katey Maddux. Terms and conditions, features, support, pricing, and service options subject to change without notice. international stocks and bonds \textbf{\textsf{Accounts}} && \textbf{\textsf{Murray Kiser,}} && \textbf{\textsf{Murray Kiser,}} && \textbf{\textsf{Fees}} \hspace{6pt}\\ 3. Required fields are marked *. Whos using straight salary plus commission compensation? You can tweak the budget annually by deciding whether the business has flourished enough to offer merit raises. \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 The tools and resources you need to get your new business idea off the ground. Which of the following is not one of the desired outcomes of an optimal reward system? A straight salary plan can be advantageous in certain situations. With ambitious expansion plans, BIA has decided it needs a second service hub on the continent, to complement its large Heathrow (London) repair facility. \text{Louisville} & \text{65} & \text{Tennessee} & \text{62} & \text{3}\\ Lavish formal recognition programs can provide all of the following benefits to a salesforce except. This leaves the salespersons with no opportunity for extra money or incentives. Advantages of Straight Salary Method 1. To implement a new or modified reward system, sales managers should do all of the following except. determine the relative amounts to be paid in salary, commission, and bonus. A major objective of a well-designed compensation package is to: 1. -2,000\\ 6. 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. Due to the complexity of the plan and its many compliance issues, few companies offer equity or stock in the short-term. 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. Companies looking for long-term growth as opposed to short-term sales may opt for this type of compensation as well. Some disadvantages of straight salary compensation may include reduced retention and high turnover if employees dont see opportunities to increase their pay. Straight salary method of remuneration Meaning, Suitability, Advantages, Disadvantages. 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. Bal.1.2.3.4.5.6.7.Bal.Cash30,000+35,00026,00015,0002,0007,20014,800+AssetsSupplies4,000+1,5003,0002,500+Land75,000+15,00090,000==LiabilitiesAccountsPayable8,000+1,5007,2002,300++MurrayKiser,Capital101,000101,000OwnersEquityMurrayKiser,Drawing2,0002,000+FeesEarned35,00035,000Expenses26,0003,00029,000. If your family does not have a complete home inventory, encourage your parents or other adults with whom you live to create one. WinningTeamPointsLosingTeamPointsWinningMarginArizona90Oregon6624Duke85Georgetown6619FloridaState75WakeForest705Kansas78Colorado5721Kentucky71NotreDame638Louisville65Tennessee623OklahomaState72Texas666Purdue76MichiganState706Stanford77SouthernCal6710Wisconsin76Illinois5620\begin{matrix} Take a reactive approach to seeking out motivational problems and sources of frustration in the salesforce. \end{array} The advantages of straight salary compensation include which of the following? i) Beneficial for industries which prohibits direct sales. 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 In the same vein, contractors are not subject to withholding and are therefore responsible for their own taxes (the self-employment tax). $$ It does not provide any incentive for hard work. Straight salary offerings can also be good for attracting new talent that's concerned with stability. 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. 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. The right plan will not only motivate your workforce, but it will also align with your business goals and profitability. 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.). bonuses for sales target achievement), in others salespersons receive commissions as a percentage of the sales they were involved in. Person A pays over $18,000 in tax and receives a net income of around $62,000. Salespeople may also be paid on a straight salary basis in which there is no opportunity to earn incentives. \end{array} Selling situations that require salespeople to perform special services for customers are more likely to be performed when salespeople are on salary. System is easy to understand and compute. \begin{array} {c} For more information on your states minimum wage requirements, read up on minimum wage requirements or visit the Department of Labors website. Does not provide security, so the reps will work harder. 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. Such a plan is quite common in the services industry as well as in the industrial goods sector. We provide third-party links as a convenience and for informational purposes only. Using the mean and standard deviation found in part (a), Overall compensation and rewards increase with the use of team selling. In fields that typically involve commissions, the outside sales exemption and the retail sales exemption may also apply. Today, January 26, 2004). $$ virtually automatic, this form of commission rate would be appropriate: An example of a selling situation requiring a commission split would be. 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." In designing plans one must balance the goals of the firm, as well as the needs of the sales force and customers. Working as a contractor definitely has its benefits. Depending on a companys compensation strategy, there are both pros and cons for hourly versus salaried employees. Starting salaries often begin far enough above hourly rates to be able to afford a down payment on a house or car. Salary plus commission is a balance of both stability and performance-based income. \text{JPM} & \text{JP Morgan Chase & Co.} & \text{70.61} & \text{57.07} & \text{57.45} & \text{$+1.11$} & \text{20,987,678} & \text{58.11} & \text{57.14}\\ \hline 100% (2 ratings) FALSE because straight salary can make all sales reps equivalent individuals, which is best when th . The independent contractor category is broad and includes everything from lawn services to sales to doctors and lawyers. Which of the following conditions would indicate to the sales manager that the proportion of the For each frequency distribution, suggest "nice" bins. This type of compensation is well-suited for employees who work in a team-based culture. That means, there will not be much bad debts. Wage caps are used by some firms to prevent salespeople from making too much money. It does not distinguish between efficient and inefficient salesmen, as the same remuneration is paid to both efficient and inefficient salesmen. As a staff reporter, she has written hundreds of newspaper and magazine articles, and she is also the author of two published novels. \\ 11. -26,000\\ "USA Today": Finding What Motivates Your Employees. On the other hand, under the straight commission method, salesmens rewards are matched with their efforts. their compensation plans to recognize team performance? 3. This is a primary method for compensating independent sales agents. Katey Maddux is a paddle boarder, music lover, Zumba instructor, and Founder and CEO of. Last week's MPG for 35 student vehicles (xmin=9.4,xmax=38.7)\left(x_{\min }=9.4, x_{\max }=38.7\right)(xmin=9.4,xmax=38.7). Incentives to Salesmen: Straight salary method does not provide any incentive to the salesmen to do hard work. 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. 4. Once you own property, you should take steps to protect it from loss, theft, and damage. \\ Save my name, email, and website in this browser for the next time I comment. The companys income tax rate is 35%. Helps management to control salespeople's activities. \begin{array} {rcrcrcrcr} Paycheck calculator for hourly and salary employees. The amount of mental and physical effort put forth by the salesperson is referring to, The salesperson's choice to expend effort over a period of time, especially when faced with adverse, The motivation task is incomplete unless salespeople's efforts are. Applicable laws may vary by state or locality. So, it does not encourage salesmen to do hard work. Are benefits included in the definition? Laws differ by state, so do your research before making any decisions. In this plan, you will pay a straight salary to your employees and no commission, no bonus, and no incentives. Copyright 2023 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. She loves training, creating processes, and introducing her clientele to new apps and technology. This article has been researched & authored by the Business Concepts Team. A straight salary can greatly benefit someone who is transferring to a new territory. 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. Intuit, QuickBooks, QB, TurboTax, Mint, Credit Karma, and Mailchimp are registered trademarks of Intuit Inc. }\\ Salary plus commission plans are often used for sales positions or corporate positions when the company wants to encourage leaders to push for substantial growth and high performance. Which of the following is an advantage of a straight-commission compensation plan? they contribute little to company loyalty, resulting in potential salesforce control problems. This type of compensation refers to a set hourly amount without additional performance-based income. Because they are self-employed, contractors are eligible for SEP IRAs. Advantages of salary plus commission The benefits of a salary plus commission plan include: 1. This requires very clearly defined territory outlines and territories that produce enough income to support competitive wages. Salesmen Reward: Under the straight salary method, salesmens rewards are not matched with their efforts. Which of the following conditions would indicate to the sales manager that the proportion of the In most companies, the base pay is determined by the workers job title and job role. Topical articles and news from top pros and Intuit product experts. Leadership Insights 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. Talent poaching occurs when an employee is recruited away from one company by another. Straight Salary Straight salary sales compensation plans aren't very common, but they do have a place in some organizations. According to your text, which benefit is offered by the greatest percentage of companies? Offers considerable incentive for the salespeople. Some of these jobs also have flexible schedules, which can be beneficial to employees. . as well as U.S. securities. It is usually easy to design pay plans that fully meet the goals and needs of the firm, customers, and salespeople. On a straight salary, they will be paid this regardless of how many deals they close. In this situation, employers have to pay overtime, despite the employee being salaried. The salespersons perfect plan, a residual commission compensation (RCC) plan pays employees a commission as long as the accounts are producing revenue. He holds a Bachelor of Science in marketing from York College of Pennsylvania. has very specific requirements for classifying and paying employees. 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 costing little and reinforcing desirable behavior immediately after it occurs. Based on this analysis you know that a larger percentage of the salesperson's pay should be _____________ as compared to ______________ for the best results. &&&& -2,000\\ 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. Everything you need to start accepting payments for your business. Companies looking for a simple or consistent payroll solution without any surprise payroll expenses will likely build their compensation offering around straight salaries. Everything you need to know about managing and retaining employees. Different companies offer different compensation plans to their sales representatives- the straight salary plan being one of the simplest. This type of sales compensation plan is employed in companies which prohibits direct sales. 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. The high level of uncertainty associated with performance-based pay often leads to extreme competition among the salespersons; leading to lack of cooperation that can harm the companys goals at times. Unlike a heavily commission-based position in which income relies on sales volume, the salesperson earns the same amount of compensation regardless of how much she sells. 7. 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. These plans often include a straight salary income for training periods or during low seasons. If so, an hourly rate with a flexible schedule could be more attractive. View the full answer. Of course, there are exceptions to every rule.