How to start and run a successful e-commerce business. The content on MBA Skool has been created for educational & academic purpose only. pharmaceutical sales) is the most common type of sales process used. 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. The advantages of straight salary compensation include which of the following? Employees who like to work on teams and dont want their compensation to be judged on individual performance may be attracted to this kind of plan as well. One benefit, from the employers perspective, is the company only pays commissions when the top line improves, so its beneficial from a profitability standpoint. Provide a mix of both compensation and noncompensation rewards comparable to other firms. For each frequency distribution, suggest "nice" bins. Employees earning salary plus commission will have higher income tax rates than a self-employed agent. Review the example home inventory shown before. Therefore, employers are not required to pay overtime if employees work more than 40 hours per week. The straight salary plan proves advantageous to both the salesperson and the management. There may be multiple rates of bonuses and commission, and payroll managers must have a system in place to keep track of everything. As defined by the IRS, independent contractors are people who are in an independent trade, business, or profession in which they offer their services to the general public. Employees and independent contractors are mutually exclusive, as a person is either one or the other. Part A: Compare the advantages and disadvantages of straight salary and straight commission compensation plans. Additional information and exceptions may apply. Which of the following is not mentioned in the text as a challenge to sales managers attempting to adjust 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. . Paycheck calculator for hourly and salary employees. As the various salesmen on a particular scale of pay are paid the same remuneration, it avoids jealousy among the salesmen. Per the IRS definition, the contractor is in control of how the work gets done, so there is a lot of freedom. 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. 1. But when that same group opened up about things that weren't essential to the negotiation, 59 percent were able to strike a deal. 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. This type of compensation plan puts less pressure on individuals and fosters team-building. She loves training, creating processes, and introducing her clientele to new apps and technology. Under this plan, companies compensate its employees entirely on the profits made by the business. For more information on your states minimum wage requirements, read up on minimum wage requirements or visit the Department of Labors website. 100% (2 ratings) FALSE because straight salary can make all sales reps equivalent individuals, which is best when th . Employees who receive it are considered nonexempt by the FLSA, meaning their compensation is regulated. estimate the percentage of all NCAA games in which the winning team scores 84 or In this type of compensation, income is solely based on sales made. If he earns less in commissions, he must pay the remainder back to the company. . Check to see how the salespeople would fare under the new plan by using sales figures from the previous year and calculating expecting compensation. ____________ is the easiest plan to administer and budget for. \text{Bal.} Hourly roles can often be perceived as less valuable or easier to replace. Talent poaching occurs when an employee is recruited away from one company by another. Match the terms with the definitions. \text{Louisville} & \text{65} & \text{Tennessee} & \text{62} & \text{3}\\ \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}}\\ A straight salary can also benefit an experienced salesperson who is transferring to a new territory where the company and its products may be completely unknown. The tools and resources you need to take your business to the next level. Plan A is to borrow at 6%. the working capital requirements are lessened with the straight-salary compensation plan. So, it can be easily understood by all salesmen. than to older salespeople: When a sales manager assures salespeople that they fulfill a critical role in revenue production and other 4. It is not clear that offering unlimited opportunities to earn higher pay will always be an effective method for continued salesperson motivation. 5. An employee who agrees to this type of compensation will receive a base salary along with an additional bonus if performance hits or exceeds earning goals. Finding balance and setting boundaries at work. It has been reviewed & published by the MBA Skool Team. -2,000\\ Which of the following is/are most likely to be among them? If you have less experience or education than other job applicants, taking a salaried . 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 advantages of straight salary compensation include which of the following? Another disadvantage is the lack of benefits. \text{Bal. Companies looking for a simple or consistent payroll solution without any surprise payroll expenses will likely build their compensation offering around straight salaries. Design the plan centrally and dictate to local countries. 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. A change from straight commission to straight salary. 8,000 && 101,000\\ &&&&&&&& -26,000\\ All of the following are typical reimbursable expense items except. Whos using straight salary compensation? Sales Costs: Under the straight salary method, sales costs are not matched with the sales. -7,200\\ Is it just monetary? The most commonly used definitions of motivation include these three dimensions: Use the table below. The nine different types of compensation packages include: This type of compensation refers to a set annual amount, divided by the years pay periods to get a pay rate weekly, every two weeks, or monthly. Nevertheless, salary compensation plans are appropriate in a number of situations. The straight salary plan is one of the simplest compensation plans that companies offer to their employees, particularly sales representatives. Running payroll for hourly employees, as opposed to salaried employees, can also be significantly cheaper, making it easier for companies to hit financial goals. 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 However, a straight salary plan also has its own advantages. The salesperson experiences a high level of security with a salaried sales position. This pay plan is the: Combination plan (Base salary + performance based commission). Today, January 26, 2004). 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. 10. Straight salary compensation plans are ideal in industries where the normal structure does not involve (and might even prohibit) direct sales. 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). Contractors can determine their own fees, working hours, employees, etc. In this sense, compensation is a counterbalance. In this, salespeople continue to receive a commission as long as their accounts are generating revenue for the employer. So, it can be easily understood by all salesmen. Are benefits included in the definition? Salaried workers who earn more than $23,660 per year are considered exempt under the Fair Labor Standards Act (FLSA). And because there is no financial security that kicks in if sales arent made, those who dont earn enough leave or burn out quickly. Provide an opinion of which type of compensation plan you would prefer as a professional salesperson. This type of plan is often found in multi-level marketing (MLM) companies. 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. You have a meeting with her to outline the drawback(s) of this type of plan. Employees who receive it are considered nonexempt by the FLSA, meaning their compensation is regulated. 2. Overall compensation and rewards increase with the use of team selling. Are they just trying to pay their way through college? Perhaps the most serious shortcoming of straight-commission plans is that. 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. Those who sell below $35,000 will not receive commissions. Straight salary offerings can also be good for attracting new talent that's concerned with stability. A regular and stable income can do much to develop a loyal and well-satisfied salesman. The goal of the compensation package is to reward employees for their efforts without putting the firm's profitability in jeopardy. Due to the complexity of the plan and its many compliance issues, few companies offer equity or stock in the short-term. Sales contests will continue to be an important tool for achieving expedient results. elect to receive regular straight time pay or bank compensatory time at their straight time rate. their compensation plans to recognize team performance? O True O False. \\ channeled in directions consistent with the overall strategic role of the salesforce within the firm. This offers the security of a salary with the greater earning potential of commission. except. Salary programs are most appropriate when it is difficult to relate the efforts of individual salespeople to the size or timing of a sale. 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). 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). After initial investigations by Holmes Miller, head of the Operations Department, BIA has narrowed the list to 9 cities. With ambitious expansion plans, BIA has decided it needs a second service hub on the continent, to complement its large Heathrow (London) repair facility. Employers who pay by the hour should focus on increasing morale and showing employees they are valued in order to avoid turnover. Straight salary method of remuneration is simple. a supportive sales management leadership style. Accordingly, the information provided should not be relied upon as a substitute for independent research. Total sales for the territory are then split among the sales reps in that territory. the working capital requirements are lessened with the straight-salary compensation plan. -15,000 &&&& +15,000\\ Salesmen have the greatest. A straight salary can greatly benefit someone who is transferring to a new territory. \text{Stanford} & \text{77} & \text{Southern Cal} & \text{67} & \text{10}\\ -26,000\\ \textbf{\textsf{Cash}} & \bm{+} & \textbf{\textsf{Supplies}} & \bm{+} & \textbf{\textsf{Land}}\\ 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. Which of the following statements regarding changes in the reward system is false? This requires very clearly defined territory outlines and territories that produce enough income to support competitive wages. In case the salesperson shows high sales performance, the firm increases its salary. nonfinancial reward: The Million Dollar Roundtable designation in the insurance industry is an example of this type of An incentive pay cannot work in such a case. \textbf{\textsf{Liabilities}} & \bm{+} &&&\textbf{\textsf{Owner's Equity}}\\ Subscribe to our newsletter and stay updated on the latest HR news and trends. The major disadvantage is that the salespersons may not feel motivated and would only complete the minimum requirements. Laws differ by state, so do your research before making any decisions. 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 Which of the following conditions would indicate to the sales manager that the proportion of the Offer your support. You can tweak the budget annually by deciding whether the business has flourished enough to offer merit raises. 3. Currently editor at The HR Digest Magazine. the requirement that expenses be charged and the bills sent directly to the company for payment by the accounting department. 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. 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. If theyve just started a family, they may be looking for benefits like parental leave and the chance to work from home. the following except. The importance of matching the abilities and needs of sales recruits to the ____ cannot be overstated. 4. These can range from monetary benefits (like extra. 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. &&&& -2,000\\ The independent contractor category is broad and includes everything from lawn services to sales to doctors and lawyers. The different types of compensation include . 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. But straight commission method provides sufficient incentive to the salesmen to do hard work. Everything you need to start accepting payments for your business. costing little and reinforcing desirable behavior immediately after it occurs. \text{Kentucky} & \text{71} & \text{Notre Dame} & \text{63} & \text{8}\\ An advantage of the straight salary plan for compensating salespeople is that it: Provides a direct relationship between sales and expenses. The main differences between the straight salary method and straight commission method are explained below: Straight Salary Method vs Straight commission Method. You also decide to pay your salespeople with the most common type of compensation plan among companies. Advantages to Salesperson: The salesperson feels free from financial uncertainties because of stable income inflow. Part A: Compare the advantages and disadvantages of straight salary and straight commission compensation plans. tend to produce too many salesforce objectives which are of the crisis-resolution variety. WinningTeamArizonaDukeFloridaStateKansasKentuckyLouisvilleOklahomaStatePurdueStanfordWisconsinPoints90857578716572767776LosingTeamOregonGeorgetownWakeForestColoradoNotreDameTennesseeTexasMichiganStateSouthernCalIllinoisPoints66667057636266706756WinningMargin241952183661020. Some disadvantages of straight salary compensation may include reduced retention and high turnover if employees dont see opportunities to increase their pay. 1. Compensation usually takes the form of monetary payment exchanged for time, labor and expertise. Hourly plus commission compensation does have its disadvantages as well. In the same vein, contractors are not subject to withholding and are therefore responsible for their own taxes (the self-employment tax). Estimate the percentage of NCAA games in which the winning team 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. 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 , which can vary depending on their states minimum wage. Take a reactive approach to seeking out motivational problems and sources of frustration in the salesforce. Among the drawback(s) you will discuss include: You have read a "want ad" in the latest edition of Marketing News. The advantages of straight salary compensation include which of the following? How to find funding and capital for your new or growing business. 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. 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. She loves training, creating processes, and introducing her clientele to new apps and technology. As a result, she avoids the high degree of stress and uncertainty that comes with pay-for-performance compensation. \hline Based on this information, which salesperson compensation plan would work best? 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. On the other hand, when you pay commission, you pay when an employee does something to cause your business to see a profit. 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 good salary plus commission plan will motivate employees to higher sales and performance while giving them the peace of mind of regular, stable income. 4. 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. 9. is considered a serious offense, which, if detected, often leads to termination of employment. A straight salary plan can be advantageous in certain situations. On a straight salary, they will be paid this regardless of how many deals they close. Your ultimate goal is to control selling expense and provide extra rewards for added results. ___________ rewards are those that are given in return for acceptable performance or effort. Commission-only compensation plans are usually simpler and easier on payroll than compensation types combined with hourly or salary pay rates. 6. A sample of 10 NCAA college basketball game scores provided the following data (USA The board of directors of this family-owned company believes that Park N Fly could earn an additional $1.5 million income before interest and taxes by expanding into new markets. 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. 5. Because there is no incentive to push products, the salesperson can be more concerned with meeting the needs of the customer and building a long-term relationship, which is important in a situation in which repeat visits are part of the job. Additionally, they have full control over benefits like insurance and retirement management. There are many people who would simply prefer to work with the relative security of a salary position. 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. By accessing and using this page you agree to the Terms and Conditions. It is critical that companies using this type of system have good metrics in place for tracking sales so they can fairly and accurately calculate commissions. Summary financial data for February are presented in equation form as follows. Murray Kiser operates his own catering service. A salaried compensation plan can help promote a sense of teamwork needed to close these more complex transactions. Grant cites a Stanford and Kellogg study that found when a group of people only shared their email and names during negotiations, they struck up agreements 40 percent of the time.
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