advantages of straight salary plan

They want to know precisely how much money they're going to make each month and to feel as though that income is dependable. Companies often feel they can justify a lower salary or rate if they include a more robust benefits package. 7. Employees are guaranteed to receive at least base salary to pay the bills, even during a time period when their sales are low. The content on MBA Skool has been created for educational & academic purpose only. Once the person has established himself in the area, the company can switch to performance-based salary. Under this system, rewards are not matched with efforts. 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. \underline{\underline{2,300}} && \underline{\underline{101,000}} && \underline{\underline{-2,000}} && \underline{\underline{35,000}} && \underline{\underline{-29,000}}\\ \\ \\ \\ She helps HR professionals identify issues with their talent management and employment law. This is a very broad category of compensation. Your email address will not be published. But straight commission method is based on the sales effected by the salesmen and not on the time spent on the job. The compensation is usually calculated by finding out territory volume. This system safeguards the interests of the consumers also. Running payroll for hourly employees, as opposed to salaried employees, can also be significantly cheaper, making it easier for companies to hit financial goals. 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. 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. Salespeople may also be paid on a straight salary basis in which there is no opportunity to earn incentives. They may have less vacation time or even zero paid vacation time. Any re-adjustments in sales territories or management policies can be easily carried out under this system without much resistance from the salesmen, as the salesmen will be paid the same remuneration, irrespective of sales territories. You are the sales manager of a large, multi-product company. 2. An employee who works only on salary has little external motivation to go above and beyond. Similar to straight salary, this compensation structure offers employees a guaranteed base income annually, but also offers performance-based income in addition, unlike straight salary. Which of the following accurately describe per diem expense plans? In territory value compensation (TVC), payment is calculated based on the territory volume at the end of a period. Provide an opinion of which type of compensation plan you would prefer as a professional salesperson. O True O False. Fringe Benefits and Salary Plan based upon the employee's rate of pay immediately preceding retirement. If so, an hourly rate with a flexible schedule could be more attractive. nonfinancial reward: All of the following are steps suggested for facilitating a sense of accomplishment in the salesforce Salesmen Reward: Under the straight salary method, salesmens rewards are not matched with their efforts. Disadvantages of straight hourly compensation, Whos using hourly plus commission compensation, Benefits of hourly plus commission compensation, Disadvantages of hourly plus commission compensation, Disadvantages of commission-only compensation, Whos using territory volume compensation, Benefits of territory volume compensation, Disadvantages of territory volume compensation, 7. issue a press release detailing the company's changes. 9. The advantages of straight salary compensation include which of the following? How much investment capital should you accept? not, explain. Many appreciate the fallback stability of the base salary paired with performance incentives. 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. Subscribe to our newsletter and stay updated on the latest HR news and trends. 3. \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 Straight salary method of remuneration is found suitable and is usually adopted under the following circumstances: 1. Employees who prefer to set their own schedules or be their own boss often thrive in commission-only environments. }\\ Building an effective sales force compensation plan boils down to: When establishing goals for the compensation plan, a sales manager must consider: Competitive compensation packages in the marketplace. Which, if any, of the following sources available will help you in your task? 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. But straight commission method distinguishes between efficient and inefficient salesmen. Laws differ by state, so do your research before making any decisions. Straight salary plans are not popular with salespeople because: They don't provide strong incentives for extra effort. 2. Travel and entertainment costs are a relatively insignificant portion of a salesperson's compensation package. Sparks holds a Bachelor of Arts in business. A major objective of a well-designed compensation package is to: 1. When the salesmen are required to perform some other functions in addition to selling. For post-Depression-era baby boomers, the security of a steady salary is important. 12. 4. The advantages of straight salary compensation include which of the following? Compensation rewards might include all of the following except. Whos using straight salary compensation? Changing from a straight salary plan to a combination salary plus commission plan provides a number of benefits. 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. Defined by the FLSA, tipped employees are those who receive more than $30 per month in tips. Employers have to think about who their target employee is and what that employee is looking for. \text{ } & \text{ } & \text{52-Week} & \text{52-Week} & \text{ } & \text{ } & \text{Sales} & \text{ } & \text{ }\\ 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). Some of this is likely due to a generational shift in what employees are really looking for. Employees who also have seasonal or fluctuating availability, like students or people with children, also benefit from the flexibility that comes from hourly compensated positions. Your positive feeling towards inclusion at work should be synced with your actions on making a change. Commission-only compensation plans are usually simpler and easier on payroll than compensation types combined with hourly or salary pay rates. \text{Bal. Assume that the points scored by the winning teams for all NCAA games follow a Under Straight salary method, a salesman is paid remuneration on time basis. Whos using straight salary plus commission compensation? \hline costing little and reinforcing desirable behavior immediately after it occurs. No assurance is given that the information is comprehensive in its coverage or that it is suitable in dealing with a customers particular situation. Such positions might include retail sales, restaurant employees, barbers and cosmetologists, and customer service reps. Which of the following is not an advantage of the commission compensation plan? $$ Readers should verify statements before relying on them. \end{array} When there are considerable seasonal variations in the sales made by the salesmen. a. salaries are a fixed cost to the firm and thus tend to decrease proportionally as sales increase. Applicable laws may vary by state or locality. In this situation, employers have to pay overtime, despite the employee being salaried. Take a reactive approach to seeking out motivational problems and sources of frustration in the salesforce. \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{-3,000}\\ Your earning potential is unlimited. 5. As the Vice President of Sales for a new startup company, you decide to hire and train your own field sales force. What is the amount of net increase in owners equity during the month? According to your text, what would you do next? I thought wed follow up on that post by exploring the six different types of compensation plans in depth. 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. Whos using straight hourly compensation? A straight salary can greatly benefit someone who is transferring to a new territory. the working capital requirements are lessened with the straight-salary compensation plan. Accounting and bookkeeping basics you need to run and grow your business. \begin{array} {c} 4. \textbf{\textsf{Liabilities}} & \bm{+} &&&\textbf{\textsf{Owner's Equity}}\\ is considered a serious offense, which, if detected, often leads to termination of employment. We provide third-party links as a convenience and for informational purposes only. Since there are no (monetary) incentives to work harder, a non-competitive environment may tempt employees to become complacent, limiting the companys growth. Advantages to Salesperson: The salesperson feels free from financial uncertainties because of stable income inflow. finds the job to be inherently rewarding. WinningTeamPointsLosingTeamPointsWinningMarginArizona90Oregon6624Duke85Georgetown6619FloridaState75WakeForest705Kansas78Colorado5721Kentucky71NotreDame638Louisville65Tennessee623OklahomaState72Texas666Purdue76MichiganState706Stanford77SouthernCal6710Wisconsin76Illinois5620\begin{matrix} In many companies, basics plus bonus-based compensation plans are used as a way to motivate employees. Another disadvantage is the lack of benefits. Before making any decisions, consider what type of compensation you can offer potential employees and what the stipulations of that compensation plan are. 2. So, it does not encourage salesmen to do hard work. For example, consider a salesman who frequents various retail stores or department stores to check inventory or take orders for replenishment. ____________ is the easiest plan to administer and budget for. Advantages of straight-salary compensation plans include all of the following except. except: make it easy enough to allow for a majority of the salesforce to win. This means you can always keep earning more money if you're willing to put in some extra hours of work. Each time a commission check is cut you have the satisfaction of knowing that it's due to something positive. You think you have finally selected a compensation method and wage level that meets your boss's requirements. __________ 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. When it comes to employee compensation, there isnt a one-size-fits-all solution. Which of the following is not one of the desired outcomes of an optimal reward system? provide salespeople with trips and other rewards. On the other hand, TVC can lead to hostility between employees if they dont feel the workload or efforts of all representatives are balanced. The commission can include (but is not limited to) a percentage of personal sales, a percentage of team sales, bonuses, or overtime pay. Another disadvantage is that hourly employees often have fewer benefits than salaried employees and are sometimes required to contribute more toward their health insurance premiums. 5 Park N Fly presently has net income of $3.5 million and 1 million shares of common stock outstanding. as well as U.S. securities. Control over Salesmen: Straight salary plan gives the management sufficient control over the salesmen. This type of plan is often found in multi-level marketing (MLM) companies. 7. 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} __ A mutual fund that purchases 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. -7,200\\ Intuit does not endorse or approve these products and services, or the opinions of these corporations or organizations or individuals. All of the following are typical reimbursable expense items except. The hourly rate can be less than the required minimum wage. The independent contractor category is broad and includes everything from lawn services to sales to doctors and lawyers. Check to see how the salespeople would fare under the new plan by using sales figures from the previous year and calculating expecting compensation. 2. Another advantage of this pay structure is that it helps in attracting more talent . a. A common salary-to-commission ratio is 60:40 (60 percent fixed / 40 percent variable). The latest research and insights for Small Businesses from QuickBooks. In this compensation structure, the employee receives a set hourly rate, plus a percentage of their sales. So, it can be easily understood by all salesmen. 2. 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. salesperson's total pay that is salary should be relatively high? This article has been researched & authored by the Business Concepts Team. Business is going well for Park N Fly , the company that operates remote parking lots near major airports. 1. In this plan, you will pay a straight salary to your employees and no commission, no bonus, and no incentives. 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. Tax basics you need to stay compliant and run your business. -7,200\\ Perhaps the most serious shortcoming of straight-commission plans is that. \underline{\ \ \ \ \ \ \ \ \ \ \ \ }&& \underline{-3,000} && \underline{\ \ \ \ \ \ \ \ \ \ \ \ }\\ Lavish formal recognition programs can provide all of the following benefits to a salesforce except. | Priyansha tweets at. Employers are also required to pay employees theminimum wage, which can vary depending on their states minimum wage. 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. Companies that pay their employees using PMR-based compensation will want to offer additional benefits to make up for their potentially low liquidity. Plan B is to issue 100,000 shares of common stock. Guaranteed income With a salary plus commission plan, you still earn a base salary regardless of how many products you sell. This compensation type tends to attract fewer people since there is no secure base pay. If an employee makes no sales during a month, he doesnt get paid. ii) There will be no surprise of payroll expenses. Overall compensation and rewards increase with the use of team selling. 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 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. Help Miller rank the top three cities that BIA should consider as its new site for servicing aircraft. && +1,500\\ Because her income is stable, planning and managing her personal finances is easier. \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 advantages of paying employees a straight commission include the fact that it provides direct motivation to sales representatives to sell more products and services so they can earn more. \textbf{\textsf{Accounts}} && \textbf{\textsf{Murray Kiser,}} && \textbf{\textsf{Murray Kiser,}} && \textbf{\textsf{Fees}} \hspace{6pt}\\ 8. 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 working capital requirements are lessened with the straight-salary compensation plan. Employers are also required to pay employees the. Offers considerable incentive for the salespeople. Purely paid-by-commission plans can create an unfriendly, competitive environment within teams. Each line designated by a number indicates the effect of a transaction on the equation. 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." A salaried compensation plan can help promote a sense of teamwork needed to close these more complex transactions. It is often used in direct sales industries and multi-level marketing (MLM) firms that work with independent contractors. A fixed dollar amount is paid for each day or week in the field. 5. 5. How to find funding and capital for your new or growing business. \\ Salespeople can be compensated in a number of different ways. 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. In commission only jobs, companies offer a safety net in the form of draw against commission. The company pays its salespeople a set amount known as a pre-determined draw at the beginning of each pay period. 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. Due to the complexity and compliance issues involved, very few companies offer equity or stock. In these situations, it can be difficult to determine who contributed most to attaining the sale, making a commission plan difficult to administer. Tax and bookkeeping basics you need to run and grow your business. 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. 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 Quizzes test your expertise in business and Skill tests evaluate your management traits. How much do employees cost beyond their standard wages? If its part of their contract, salespeople can continue to receive commissions even after theyve left the company. 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. , holiday pay, and parental leave) to lifestyle benefits (like flexible working hours. Employees who receive it are considered nonexempt by the FLSA, meaning their compensation is regulated. As a business owner it can be a challenge to figure out how to compensate employees. "USA Today": Finding What Motivates Your Employees. Cost of Administration: The cost of administration of straight salary plan is less than that of straight commission plan. Advantages of Straight Salary Method 1. 1. Corporate industries and IT sales, for example, often use this type of compensation when creating bonus plans. \text{Oklahoma State} & \text{72} & \text{Texas} & \text{66} & \text{6}\\ There are many people who would simply prefer to work with the relative security of a salary position. Starting salaries often begin far enough above hourly rates to be able to afford a down payment on a house or car. Of course, there are exceptions to every rule. The salespersons perfect plan, a residual commission compensation (RCC) plan pays employees a commission as long as the accounts are producing revenue. except. In case the salesperson shows high sales performance, the firm increases its salary. Which one of the following statements regarding global compensation is false? WinningTeamArizonaDukeFloridaStateKansasKentuckyLouisvilleOklahomaStatePurdueStanfordWisconsinPoints90857578716572767776LosingTeamOregonGeorgetownWakeForestColoradoNotreDameTennesseeTexasMichiganStateSouthernCalIllinoisPoints66667057636266706756WinningMargin241952183661020. On the other hard, straight commission method does not give the management sufficient control over the salesmen. \hline\\ Topical articles and news from top pros and Intuit product experts. An incentive pay cannot work in such a case. Salespeople should compete in teams with each member of the team making a contribution to the group's total goal. As a sales manager, you liked the advantages that salary plus bonus plans offer yet you were very concerned about some of the following serious problems associated with it: You have decided to change your commission structure to enhance market penetration. The primary benefit of salary-plus-commission plans is they allow the compensation program to be tailored to the needs of a particular firm. The importance of the salesperson's personal skills in making sales is considerable. The salesperson experiences a high level of security with a salaried sales position. b. Ages of 50 airplane passengers (xmin=12,xmax=85)\left(x_{\min }=12, x_{\max }=85\right)(xmin=12,xmax=85). 3. Additionally, they have full control over benefits like insurance and retirement management. Many millennials, however, are more focused on work-life balance and lifestyle plans, valuing more vacation or the freedom to work from home. 3. 3. If you have less experience or education than other job applicants, taking a salaried . Working as a contractor definitely has its benefits. Is your team struggling with burnout and a lack of fulfillment at work? 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. \text{Symbol} & \text{Stock} & \text{High} & \text{Low} & \text{Last} & \text{Change} & \text{Volume} & \text{High} & \text{Low}\\ \hline Give your reasons. Each is then rated on 12 factors, as shown in the table below. The tools and resources you need to manage your mid-sized business. \textbf{\textsf{Cash}} & \bm{+} & \textbf{\textsf{Supplies}} & \bm{+} & \textbf{\textsf{Land}}\\ 7. 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. Straight salary refers to the basic salaries and wage given to the worker. In designing plans one must balance the goals of the firm, as well as the needs of the sales force and customers. In this, salespeople continue to receive a commission as long as their accounts are generating revenue for the employer. The major disadvantage is that the salespersons may not feel motivated and would only complete the minimum requirements. Sales Management Insight: Sales Commission Plans. \text{Bal.} Save my name, email, and website in this browser for the next time I comment. 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). With some compensation plans, they can earn additional incentive pay in the form of commissions or bonuses that a company offers in an attempt to motivate them. So what is compensation? 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. , LLC in Miami, Florida. Straight salary offerings can also be good for attracting new talent thats concerned with stability. The tools and resources you need to run your business successfully. This type of compensation refers to a set hourly amount without additional performance-based income. elect to receive regular straight time pay or bank compensatory time at their straight time rate. Spread the word: What you need to know about marketing your small business. Because they are self-employed, contractors are eligible for SEP IRAs. plan is recommended: Advantages of straight-salary compensation plans include all of the following except. What are the most popular types of compensation packages? For more information on your states minimum wage requirements, read up on minimum wage requirements or visit the Department of Labors website. Security and collaboration: The straight salary plan provides a more stress-free working environment for the salespersons. Your email address will not be published. Currently editor at The HR Digest Magazine. 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.

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