advantages of straight salary plan

Today, January 26, 2004). Travel and entertainment costs are a relatively insignificant portion of a salesperson's compensation package. It is usually easy to design pay plans that fully meet the goals and needs of the firm, customers, and salespeople. Are you ready for a pay raise? Control over Salesmen: Straight salary plan gives the management sufficient control over the salesmen. the working capital requirements are lessened with the straight-salary compensation plan. Part A: Compare the advantages and disadvantages of straight salary and straight commission compensation plans. manner. -15,000 &&&& +15,000\\ Such a plan is quite common in the services industry as well as in the industrial goods sector. \\ It is not clear that offering unlimited opportunities to earn higher pay will always be an effective method for continued salesperson motivation. Offers considerable incentive for the salespeople. He holds a Bachelor of Science in marketing from York College of Pennsylvania. __ A mutual fund that purchases A fixed dollar amount is paid for each day or week in the field. | Priyansha tweets at. Applicable laws may vary by state or locality. Here Are the Pros of Straight Commission. Save my name, email, and website in this browser for the next time I comment. As a staff reporter, she has written hundreds of newspaper and magazine articles, and she is also the author of two published novels. Part B: As a retail sales manager of a large superstore, one of your responsibilities is to train the newly hired employees. In fields that typically involve commissions, the outside sales exemption and the retail sales exemption may also apply. Before making any decisions, consider what type of compensation you can offer potential employees and what the stipulations of that compensation plan are. 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). The straight salary plan proves advantageous to both the salesperson and the management. Everything you need to know about managing and retaining employees. 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 However, the$5 million that the business needs for growth cannot be raised within the family. Efficiency: Straight salary method does not distinguish between efficient and inefficient salesmen. The primary benefit of salary-plus-commission plans is they allow the compensation program to be tailored to the needs of a particular firm. 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. except: make it easy enough to allow for a majority of the salesforce to win. In this type of compensation, income is solely based on sales made. Per the IRS definition, the contractor is in control of how the work gets done, so there is a lot of freedom. Which of the following is not an advantage of the commission compensation plan? It is a very useful system of remunerating newly-appointed salesmen who are new to the job. Hence, this concludes the definition of Straight Salary Plan along with its overview. Straight salary method of remuneration is simple. A regular and stable income can do much to develop a loyal and well-satisfied salesman. \end{array} 7. issue a press release detailing the company's changes. Prepare an analysis to determine which plan will result in the highest earnings per share of common stock. salesforce include all of the following except. In most companies, the base pay is determined by the workers job title and job role. The tools and resources you need to take your business to the next level. Straight salary method of remuneration Meaning, Suitability, Advantages, Disadvantages. Which of the following is not a guideline recommended in the management of motivation? A straight salary can greatly benefit someone who is transferring to a new territory. This article has been researched & authored by the Business Concepts Team. They receive fixed sums of money at regular intervals (usually each month). Your email address will not be published. Everything you need to prepare for and have a successful holiday season. According to a survey of sales executives reported in the text, the most popular sales incentive is. Relevant resources to help start, run, and grow your business. Companies looking for long-term growth as opposed to short-term sales may opt for this type of compensation as well. In most companies, the bonus is usually tied to a budgetor other target that has little significance to the employee. A salaried compensation plan can help promote a sense of teamwork needed to close these more complex transactions. Tax and bookkeeping basics you need to run and grow your business. Security and collaboration: The straight salary plan provides a more stress-free working environment for the salespersons. If theyve just started a family, they may be looking for benefits like parental leave and the chance to work from home. Working as a contractor definitely has its benefits. The tools and resources you need to get your new business idea off the ground. the requirement that expenses be charged and the bills sent directly to the company for payment by the accounting department. \text{Kentucky} & \text{71} & \text{Notre Dame} & \text{63} & \text{8}\\ Expert Answer. \hline their compensation plans to recognize team performance? Which of the following is not true regarding the design of a global salesforce compensation system? Straight Salary Straight salary sales compensation plans aren't very common, but they do have a place in some organizations. These can range from monetary benefits (like extra. Employees who receive it are considered nonexempt by the FLSA, meaning their compensation is regulated. You gain authority, prestige and responsibility. https://quickbooks.intuit.com/r/payroll/employee-compensation-benefits-guide/. Its critical for employers to keep this in mind when deciding between different types of compensation packages. By clicking Submit, you agree to permit Intuit to contact you regarding QuickBooks and have read and acknowledge our Privacy Statement. When the salesmen are required to create markets for a product. The firm is looking for a Vice President for sales and promotion. Some disadvantages of straight salary compensation may include reduced retention and high turnover if employees dont see opportunities to increase their pay. "USA Today": Finding What Motivates Your Employees. 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. Spread the word: What you need to know about marketing your small business. Your positive feeling towards inclusion at work should be synced with your actions on making a change. Let's explain the benefits with a clear example of an unpackaged salary versus an FBT exempt salary package. Which of the following statements regarding sales contests is true? costing little and reinforcing desirable behavior immediately after it occurs. \text{Arizona} & \text{90} & \text{Oregon} & \text{66} & \text{24}\\ 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. Benefit packages amount to a negligible portion of the cost of keeping a salesperson in the field. The most serious disadvantage of a straight-salary compensation plan is. Which of the following is not a form of nonfinancial compensation? \text{ } & \text{ } & \text{52-Week} & \text{52-Week} & \text{ } & \text{ } & \text{Sales} & \text{ } & \text{ }\\ Because they are self-employed, contractors are eligible for SEP IRAs. Some terms may not be used. Employees may be confused as to how pay is calculated, so transparency is important. As a business owner it can be a challenge to figure out how to compensate employees. Straight salary compensation plans are ideal in industries where the normal structure does not involve (and might even prohibit) direct sales. This pay plan is the: Combination plan (Base salary + performance based commission). -2,000\\ 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. In addition, employers also enjoy the flexibility of being able to increase or decrease employee hours seasonally or to reflect sales growth.a. Many millennials, however, are more focused on work-life balance and lifestyle plans, valuing more vacation or the freedom to work from home. The Management Dictionary covers over 2000 business concepts from 5 categories. 2. 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. 3. Advantages of Straight Salary Method 1. The straight salary plan is one of the simplest compensation plans that companies offer to their employees, particularly sales representatives. She loves training, creating processes, and introducing her clientele to new apps and technology. In your job analysis of the salesperson's activities, you discover that a significant level of activity of a successful salesperson includes taking orders for inventory replenishment, equipment installation and maintenance, and shelf-management programs. Employees like it because it rewards those who work hard. Although quite popular, salary compensation plans have some disadvantages. Control over Salesmen: Straight salary plan gives the management sufficient control over the salesmen. $$ 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 Fringe Benefits and Salary Plan based upon the employee's rate of pay immediately preceding retirement. There may be multiple rates of bonuses and commission, and payroll managers must have a system in place to keep track of everything. For a new salesperson, a salary provides a steady income during the training period when he is still learning the sales methods and products of the company. nonfinancial reward: The Million Dollar Roundtable designation in the insurance industry is an example of this type of It assures a steady minimum income to the salesmen. determine the relative amounts to be paid in salary, commission, and bonus. According to the text, which of the following is not one of the rewards typically offered to salespeople? An incentive pay cannot work in such a case. 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." Good salespeople can continue to receive residual commission ever after they leave the company through negotiation. -26,000\\ On a straight salary, they will be paid this regardless of how many deals they close. Additional information and exceptions may apply. Commission-only compensation can be valuable for employers because top performers get the most money. Wage caps are used by some firms to prevent salespeople from making too much money. Depending on a companys compensation strategy, there are both pros and cons for hourly versus salaried employees. The different types of compensation include . So, it does not encourage salesmen to do hard work. After initial investigations by Holmes Miller, head of the Operations Department, BIA has narrowed the list to 9 cities. Employees who are eager and top-performing are often attracted to this type of commission, however, since they know they can survive solely on their skills and experience. \underline{\underline{2,300}} && \underline{\underline{101,000}} && \underline{\underline{-2,000}} && \underline{\underline{35,000}} && \underline{\underline{-29,000}}\\ \\ \\ \\ 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.). Helps management to control salespeople's activities. Fresh business resources are headed your way! Is your team struggling with burnout and a lack of fulfillment at work? But straight commission method is based on the sales effected by the salesmen and not on the time spent on the job. But straight commission method distinguishes between efficient and inefficient salesmen. \text{Oklahoma State} & \text{72} & \text{Texas} & \text{66} & \text{6}\\ The tools and resources you need to run your own business with confidence. Employees are guaranteed to receive at least base salary to pay the bills, even during a time period when their sales are low. 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 You have a meeting with her to outline the drawback(s) of this type of plan . more points. Intuit, QuickBooks, QB, TurboTax, Mint, Credit Karma, and Mailchimp are registered trademarks of Intuit Inc. Whos using straight salary plus commission compensation? Purely paid-by-commission plans can create an unfriendly, competitive environment within teams. One of your first tasks is to evaluate the level of compensation for your sales force. It is easy to calculate. We provide third-party links as a convenience and for informational purposes only. Another advantage of this pay structure is that it helps in attracting more talent . \text{Bal. Person A pays over $18,000 in tax and receives a net income of around $62,000. Resources to help you fund your small business. For employers, hourly employees can be a good option for work that fluctuates seasonally. , a pet-friendly working environment, etc.). But straight commission method provides sufficient incentive to the salesmen to do hard work. One benefit, from the employers perspective, is the company only pays commissions when the top line improves, so its beneficial from a profitability standpoint. Sales Costs: Under the straight salary method, sales costs are not matched with the sales. 4. Some of this is likely due to a generational shift in what employees are really looking for. This type of environment tends to foster a sense of camaraderie and can be good for company culture and morale if done well. Compensation rewards might include all of the following except. If a salesperson earns more commissions than he was paid, he keeps the extra money. Everything you need to start accepting payments for your business. \text{ESI} & \text{ITT Ed Services} & \text{7.95} & \text{1.93} & \text{2.95} & \text{-0.03} & \text{140,466} & \text{3.11} & \text{2.92}\\ \hline \\ Because her income is stable, planning and managing her personal finances is easier. It tends to only attract less experienced staff who want a "safe" pay structure. Your salespeople are paid on commission. Salesmen Reward: Under the straight salary method, salesmens rewards are not matched with their efforts. 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. \\ ____________ is the easiest plan to administer and budget for. Because employee base pay is often low (employers can pay as low as $2.13 hour, which means the entire paycheck can go to taxes or withholding), making a livable income can be tough without significant sales. 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. Katey Maddux is a paddle boarder, music lover, Zumba instructor, and Founder and CEO ofMillennial Accounting, LLC in Miami, Florida. \end{array} There is no additional performance or sales-based income added to the employees compensation. Your email address will not be published. Which of the following is/are most likely to be among them? This can lead to high turnover, a need for more recruitment resources, and higher training costsall of which cuts into potential bottom-line savings. It does not provide any incentive for hard work. Did your choice agree with Sturges' Rule? Perhaps the most serious shortcoming of straight-commission plans is that. 4. nonfinancial reward: All of the following are steps suggested for facilitating a sense of accomplishment in the salesforce 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. 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. \text{Purdue} & \text{76} & \text{Michigan State} & \text{70} & \text{6}\\ 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 It is a highly attractive model, especially to start-ups who are seeking to penetrate a specific territory. 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. If he earns less in commissions, he must pay the remainder back to the company. Weve picked the most common and most rewarding forms of compensation plans and highlighted their benefits and downsides, so you can decide which one works best for your business needs. Which of the following is not a guideline for optimizing the use of sales contests? Employees who like working in sales but also in a team environment will be attracted to such compensation, as it takes the pressure off the individuals performance. Commission for independent sales reps can range from 5% to 40%, with the average ranging from 20% to 30% of gross margins or 7% to 15% of gross sales. It is often used in direct sales industries and multi-level marketing (MLM) firms that work with independent contractors. A straight salary can greatly benefit someone who is transferring to a new territory. Which of the following is not an advantage of the . 7. This type of compensation is often used for entry-level jobs or employees working in restaurants, retail, or the service industry, usually in non-management roles. A large direct sales company such as Avon would most likely compensate their salespeople in this Incentives to Salesmen: Straight salary method does not provide any incentive to the salesmen to do hard work. \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 For employers who dont want to pay employees after they leave, this type of compensation can incentivize employees to stay at the company. When determining the financial compensation mix, the sales manager must. provide salespeople with trips and other rewards. 2. The salespersons perfect plan, a residual commission compensation (RCC) plan pays employees a commission as long as the accounts are producing revenue. The hourly rate can be less than the required minimum wage. 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. If its part of their contract, salespeople can continue to receive commissions even after theyve left the company. 30,000 && 4,000 && 75,000\\ This means you can always keep earning more money if you're willing to put in some extra hours of work. The latest product innovations and business insights from QuickBooks. 5 Park N Fly presently has net income of $3.5 million and 1 million shares of common stock outstanding. The independent contractor category is broad and includes everything from lawn services to sales to doctors and lawyers. At the end of the pay period, this prepayment is drawn from how much the salesperson earned in commissions. The tools and resources you need to run your business successfully. Your earning potential is unlimited. Dana Sparks has been a professional writer since 1990. It assures a steady minimum income to the salesmen. 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. \\ Millennial Accounting primarily serves two nichesreal estate and property managementand is on a mission to serve, inspire, educate, and problem-solve. Running payroll for hourly employees, as opposed to salaried employees, can also be significantly cheaper, making it easier for companies to hit financial goals. PMR is common in sales and is good for startups with low liquidity. Part B: As a retail sales manager of a large superstore, one of your responsibilities is to train the newly hired employees. Example: Each rep in your company earns a straight salary of $75,000 a year, or $1,440 a week (gross). How to start and run a successful e-commerce business. Murray Kiser operates his own catering service. 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. Based on this analysis you know that a larger percentage of the salesperson's pay should be _____________ as compared to ______________ for the best results. Efficiency: Straight salary method does not distinguish between efficient and inefficient salesmen. In this, salespeople continue to receive a commission as long as their accounts are generating revenue for the employer. +1,500\\ , holiday pay, and parental leave) to lifestyle benefits (like flexible working hours. Which of the following is not a factor to be considered when developing a commission-only plan? View the full answer. Employees who prefer to set their own schedules or be their own boss often thrive in commission-only environments. Basis: Straight salary method is based on the time spent on the job, and not on the volume of sales effected by the salesmen. Following are the advantages of the straight commission plan: Pay relates directly to performance and results achieved. Defined by the FLSA, tipped employees are those who receive more than $30 per month in tips. 8,000 && 101,000\\ \text{JPM} & \text{JP Morgan Chase & Co.} & \text{70.61} & \text{57.07} & \text{57.45} & \text{$+1.11$} & \text{20,987,678} & \text{58.11} & \text{57.14}\\ \hline \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{\ \ \ \ \ \ \ \ \ \ \ \ \ \ } && \underline{-3,000}\\ This compensation type tends to attract fewer people since there is no secure base pay. Commission-only compensation plans are usually simpler and easier on payroll than compensation types combined with hourly or salary pay rates. Starting salaries often begin far enough above hourly rates to be able to afford a down payment on a house or car. 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. Transcribed image text: QUESTION 17 An advantage of using a straight salary plan to compensate sales employees is that employees can be paid for performing only sales effort. \end{array} The importance of matching the abilities and needs of sales recruits to the ____ cannot be overstated. This type of compensation is well-suited for employees who work in a team-based culture. If you choose this plan, you'll pay your reps using a mix of base salary and performance-based rewards. elect to receive regular straight time pay or bank compensatory time at their straight time rate. How much investment capital should you accept? direct salespeople's behavior toward the attainment of organizational objectives. a supportive sales management leadership style. If your family does not have a complete home inventory, encourage your parents or other adults with whom you live to create one. 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. Salary programs are most appropriate when it is difficult to relate the efforts of individual salespeople to the size or timing of a sale. The earnings of a person who is working as an independent contractor are subject to self-employment tax.. The ideal compensation plan motivates salespeople to achieve their own and the company's objectives. Summary financial data for February are presented in equation form as follows. If an employee makes no sales during a month, he doesnt get paid.

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