advantages of straight salary plan advantages of straight salary plan

A straight salary plan can be advantageous in certain situations. In this situation, employers have to pay overtime, despite the employee being salaried. It could reduce retention and increase turnover. Readers should verify statements before relying on them. Which of the following statements regarding changes in the reward system is false? But straight commission method provides sufficient incentive to the salesmen to do hard work. Finding what compensation plan works best for the company, involves accessing its strengths and weaknesses, making a decision based on the long-term goals, and carefully negotiating the contract with the employee in a way that it works best for the company and its needs. costing little and reinforcing desirable behavior immediately after it occurs. 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. more points. Is good for a financially weak company. Employers who pay by the hour should focus on increasing morale and showing employees they are valued in order to avoid turnover. This form of nonfinancial reward is generally considered to be more desirable to younger salespeople The compensation is usually calculated by finding out territory volume. Prepare an analysis to determine which plan will result in the highest earnings per share of common stock. Hourly roles can often be perceived as less valuable or easier to replace. Terms and conditions, features, support, pricing, and service options subject to change without notice. \underline{\ \ \ \ \ \ \ \ \ \ \ \ }&& \underline{-3,000} && \underline{\ \ \ \ \ \ \ \ \ \ \ \ }\\ ____________ is the easiest plan to administer and budget for. Its worth noting that inconsistent working hours can also hurt employees who may be counting on a consistent income. Commission-only compensation can be valuable for employers because top performers get the most money. A straight salary can greatly benefit someone who is transferring to a new territory. 1. Get help with QuickBooks. Under this plan, companies compensate its employees entirely on the profits made by the business. Straight Salary Straight salary sales compensation plans aren't very common, but they do have a place in some organizations. Which of the following is not an advantage of combination plans? One thing to keep in mind: If the commission rates are too low, they may seem disingenuous and could decrease morale or cause bitterness among employees. With this type of structure, you'd pay your sales people a straightalbeit competitivesalary like all of your other employees, and nothing else. Security and collaboration: The straight salary plan provides a more stress-free working environment for the salespersons. Your email address will not be published. than to older salespeople: When a sales manager assures salespeople that they fulfill a critical role in revenue production and other Control over Salesmen: Straight salary plan gives the management sufficient control over the salesmen. As a result, she avoids the high degree of stress and uncertainty that comes with pay-for-performance compensation. No two compensation plans are alike. 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} Following are the advantages of the straight commission plan: Pay relates directly to performance and results achieved. The content on MBA Skool has been created for educational & academic purpose only. If an employee makes no sales during a month, he doesnt get paid. Relevant resources to help start, run, and grow your business. We dont want you to miss anything. It tends to eliminate or reduce high-pressure selling, i.e., pushing items which are not needed by the customers. Incentives are often seen as effective triggers when the objective is to improve the top line i.e. Explore the trend of creative job titles in the job market and how they are reshaping the way we view and define roles in the workforce. 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. Travel and entertainment costs are a relatively insignificant portion of a salesperson's compensation package. The primary benefit of salary-plus-commission plans is they allow the compensation program to be tailored to the needs of a particular firm. Although quite popular, salary compensation plans have some disadvantages. Sadly, employers are usually reluctant to offer a residual commission deal to employees. 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. The latest product innovations and business insights from QuickBooks. \textbf{\textsf{Liabilities}} & \bm{+} &&&\textbf{\textsf{Owner's Equity}}\\ Its common for remote employees to revolve their entire life aro HR-related shows on Netflix are a great way to unwind and reflect on all that goes on in the workplace. Find articles, video tutorials, and more. Accordingly, the information provided should not be relied upon as a substitute for independent research. In fields that typically involve commissions, the outside sales exemption and the retail sales exemption may also apply. Further, the straight commission motivates poor performers to become more productive since it rewards good performers (Johnston and Marshall, p. 329). The net result of setting limits on sales expenses is that salespeople spend their valuable time juggling expenses from one category to another or from one time period to another to make sure they cover their costs. 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 \end{matrix} 5. Many appreciate the fallback stability of the base salary paired with performance incentives. He holds a Bachelor of Science in marketing from York College of Pennsylvania. 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. As a staff reporter, she has written hundreds of newspaper and magazine articles, and she is also the author of two published novels. A per diem expense plan pays the salesperson for all reported expenses. The directors, who strongly wish to retain family control of the company, must consider issuing securities to outsiders. If you have less experience or education than other job applicants, taking a salaried . Business is going well for Park N Fly , the company that operates remote parking lots near major airports. Advantages. You now require the sales force to sell $35,000 worth of product each month to make a commission. \text{ } & \text{ } & \text{52-Week} & \text{52-Week} & \text{ } & \text{ } & \text{Sales} & \text{ } & \text{ }\\ Employers are often hesitant to use this type of compensation, as payroll expenses can be high or unpredictable. When determining the financial compensation mix, the sales manager must. Your email address will not be published. Compensation rewards might include all of the following except. 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 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. Subscribe to our newsletter and stay updated on the latest HR news and trends. 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. To ensure proper classification, employers should begin with the assumption that their commissioned employees are nonexempt, and then review the potential exemptions to determine whether they apply. Some of this is likely due to a generational shift in what employees are really looking for. Resources to help you fund your small business. Jobs report: Are small business wages keeping up with inflation? \end{array} Minimum Income: Straight salary method assures a minimum income to the salesmen. determine the relative amounts to be paid in salary, commission, and bonus. Your earning potential is unlimited. Plan B is to issue 100,000 shares of common stock. 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Salary programs are most appropriate when it is difficult to relate the efforts of individual salespeople to the size or timing of a sale. 3. 10. When the salesmen are required to create markets for a product. At the end of the pay period, this prepayment is drawn from how much the salesperson earned in commissions. | Priyansha tweets at. In this sense, compensation is a counterbalance. 4. When the sales effected by the individual salesman cannot be isolated (i.e., when the sales are made collectively by two or more salesmen). For employers, hourly employees can be a good option for work that fluctuates seasonally. Basis: Straight salary method is based on the time spent on the job, and not on the volume of sales effected by the salesmen. This type of sales compensation plan is employed in companies which prohibits direct sales. manner. They should be made during recessionary periods. How much investment capital should you accept? 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. \hline In this type of compensation, income is solely based on sales made. 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. From a morale perspective, they can be more satisfied with their work-life balance since no one is dictating it. To implement a new or modified reward system, sales managers should do all of the following except. Hourly plus commission compensation does have its disadvantages as well. Advantages to Salesperson: The salesperson feels free from financial uncertainties because of stable income inflow. So, it can be easily understood by all salesmen. channeled in directions consistent with the overall strategic role of the salesforce within the firm. ___________ rewards are those that are given in return for acceptable performance or effort. 5. Which of the following is not one of the desired outcomes of an optimal reward system? The right plan will not only motivate your workforce, but it will also align with your business goals and profitability. 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. 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. 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? All of the above. Accounting and bookkeeping basics you need to run and grow your business. 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. Whos using straight hourly compensation? \\ \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}}\\ \\ 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 |. bonuses for sales target achievement), in others salespersons receive commissions as a percentage of the sales they were involved in. \begin{array} {rcrcr} &&&&&& 35,000\\ \\ The advantages of straight salary compensation include which of the following? The compensation plan in which virtually every type of sales activity is rewarded, is called a: Your boss thinks you should implement a salary plus commission plan with an incentive ceiling. We provide third-party links as a convenience and for informational purposes only. 6. 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). salesforce include all of the following except. The major drawback to salary plus commission plans is that they are more expensive and more costly to administer. Talent poaching occurs when an employee is recruited away from one company by another. Companies looking for long-term growth as opposed to short-term sales may opt for this type of compensation as well. Topical articles and news from top pros and Intuit product experts. \end{array} What are the most popular types of compensation packages? Expert Answer. 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). These can range from monetary benefits (like extra. ii) There will be no surprise of payroll expenses. 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 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. scores more than 90 points. Efficiency: Straight salary method does not distinguish between efficient and inefficient salesmen. \text{Louisville} & \text{65} & \text{Tennessee} & \text{62} & \text{3}\\ the requirement that expenses be charged and the bills sent directly to the company for payment by the accounting department. estimate the percentage of all NCAA games in which the winning team scores 84 or Many millennials, however, are more focused on work-life balance and lifestyle plans, valuing more vacation or the freedom to work from home. According to a survey of sales executives reported in the text, the most popular sales incentive is. A straight salary plan can be advantageous in certain situations. A change from straight commission to straight salary. \end{array} The company sets a minimum and maximum range that can increase, decrease or remain the same, depending on the workers performance. This pay plan is the: Combination plan (Base salary + performance based commission). Straight salary plan can help promote a sense of equality among sales people who work as teams or small groups, for everyone is paid equally and the contribution of each team member is also expected to be equal. Before making any decisions, consider what type of compensation you can offer potential employees and what the stipulations of that compensation plan are. The EU has made changes in airline regulation that dramatically affect major European carriers such as British International Air (BIA), KLM, Air France, Alitalia, and Swiss International Air. "USA Today": Finding What Motivates Your Employees. The Management Dictionary covers over 2000 business concepts from 5 categories. Such a plan is quite common in the services industry as well as in the industrial goods sector. Based on this analysis you know that a larger percentage of the salesperson's pay should be _____________ as compared to ______________ for the best results. Nevertheless, salary compensation plans are appropriate in a number of situations. Leadership Insights Employees who receive it are considered nonexempt by the FLSA, meaning their compensation is regulated. This compensation type tends to attract fewer people since there is no secure base pay. Provide equal pay to all employees at the same level. Offers considerable incentive for the salespeople. It provides stability of earnings without wide fluctuations. Salaried employees receive an equal portion of their annual compensation every week. Ultimately, you have to determine the method of pay that your company can best manage and to weigh the advantages and disadvantages of offering a fixed salary. The importance of the salesperson's personal skills in making sales is slight. You have a meeting with her to outline the drawback(s) of this type of plan. 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. 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. Which of the following is an advantage of a straight-commission compensation plan? After initial investigations by Holmes Miller, head of the Operations Department, BIA has narrowed the list to 9 cities. Employees who receive it are considered nonexempt by the FLSA, meaning their compensation is regulated. . Millennial Accounting primarily serves two nichesreal estate and property managementand is on a mission to serve, inspire, educate, and problem-solve. 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 sales numbers are added up and all commissions are split equally among all sales professionals. Take a reactive approach to seeking out motivational problems and sources of frustration in the salesforce. You also decide to pay your salespeople with the most common type of compensation plan among companies. the following except. Employers may use this type of compensation to keep payroll expenses low while still motivating employees to perform. Some of these jobs also have flexible schedules, which can be beneficial to employees. The salespersons perfect plan, a residual commission compensation (RCC) plan pays employees a commission as long as the accounts are producing revenue. Different companies offer different compensation plans to their sales representatives- the straight salary plan being one of the simplest. 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. Millennial Accounting primarily serves two nichesreal estate and property managementand is on a mission to serve, inspire, educate, and problem-solve. Salespeople may also be paid on a straight salary basis in which there is no opportunity to earn incentives. Payroll essentials you need to run your business. Therefore, employers are not required to pay overtime if employees work more than 40 hours per week. You can tweak the budget annually by deciding whether the business has flourished enough to offer merit raises. Fresh business resources are headed your way! 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. The workplace catchphrase you need to know. Employees may be confused as to how pay is calculated, so transparency is important. It gives greater control to the management over the salesmen by means of withholding increments, effecting a transfer, etc. Which of the following is not a factor to be considered when developing a commission-only plan? 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? TVC is most often used in team-based corporate cultures. If the nonselling administrative duties of the salesperson are of major importance, this compensation This offers the security of a salary with the greater earning potential of commission. 6. \text{SCCO} & \text{Southern Copper} & \text{29.53} & \text{19.90} & \text{22.06} & \text{-1.79} & \text{1,823,761} & \text{22.07} & \text{22.07}\\ \hline As a business owner it can be a challenge to figure out how to compensate employees. But straight commission method distinguishes between efficient and inefficient salesmen. 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). Similar to hourly employees, workers who are paid with this type of compensation are usually governed by the FLSAs nonexempt requirements and earn overtime. Additional information and exceptions may apply. \hline\\ Starting salaries often begin far enough above hourly rates to be able to afford a down payment on a house or car. 3. Straight salary compensation plans are ideal in industries where the normal structure does not involve (and might even prohibit) direct sales. These have a significantly higher (pre-tax) contribution limit than company IRAs. On the other hand, under the straight commission method, salesmens rewards are matched with their efforts. The major disadvantage is that the salespersons may not feel motivated and would only complete the minimum requirements. There are many people who would simply prefer to work with the relative security of a salary position. If its part of their contract, salespeople can continue to receive commissions even after theyve left the company. Part B: As a retail sales manager of a large superstore, one of your responsibilities is to train the newly hired employees. 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. John David Jackson, Patricia Meglich, Robert Mathis, Sean Valentine, Operations Management: Sustainability and Supply Chain Management, Service Management: Operations, Strategy, and Information Technology, Information Technology Project Management: Providing Measurable Organizational Value, Opportunity / Chance / Possibility / Occasion. \begin{array} {rcrcrcrcr} So, it does not encourage salesmen to do hard work. Per the IRS website, the general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. Does not provide security, so the reps will work harder. Salary plus commission is a balance of both stability and performance-based income. Celebrating the stories and successes of real small business owners. In most companies, the bonus is usually tied to a budgetor other target that has little significance to the employee. Melissa Skaggs shares the buzz around The Hive, Straight salary|Salary plus commission|Hourly|Hourly plus commission |Commission-only|Territory volume|Profit margin/revenue-based|Residual commission|Contractor commission|Hourly vs Salary. 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. The remaining 25% of the sick leave payout Once the person has established himself in the area, the company can switch to performance-based salary. Advantages of straight-salary compensation plans include all of the following except. Efficiency: Straight salary method does not distinguish between efficient and inefficient salesmen. From big jobs to small tasks, we've got your business covered. If so, an hourly rate with a flexible schedule could be more attractive. From a payroll standpoint, this type of compensation is harder to administer. If an employee is required to work on a holid ay as a regularly scheduled work day, . \\ An employee who works only on salary has little external motivation to go above and beyond. Perhaps the most serious shortcoming of straight-commission plans is that. Corporate industries and IT sales, for example, often use this type of compensation when creating bonus plans. Because so many hourly employees work in entry-level positions, education requirements are usually lower than those of salaried positions, which adds to this assumption. Per the IRS definition, the contractor is in control of how the work gets done, so there is a lot of freedom. While in certain compensation plans, the salespersons receive benefits on accomplishment for specific tasks (e.g. b. Ages of 50 airplane passengers (xmin=12,xmax=85)\left(x_{\min }=12, x_{\max }=85\right)(xmin=12,xmax=85). Your ultimate goal is to control selling expense and provide extra rewards for added results. 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. 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. , which can vary depending on their states minimum wage. Which of the following conditions would indicate to the sales manager that the proportion of the