advantages of straight salary plan

Under this plan, companies compensate its employees entirely on the profits made by the business. Murray Kiser operates his own catering service. 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. Which of the following is not an advantage of the commission compensation plan? Quizzes test your expertise in business and Skill tests evaluate your management traits. What are the most popular types of compensation packages? This offers the security of a salary with the greater earning potential of commission. \text{Bal. But when that same group opened up about things that weren't essential to the negotiation, 59 percent were able to strike a deal. Additionally, they have full control over benefits like insurance and retirement management. 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. A sample of 10 NCAA college basketball game scores provided the following data (USA A straight salary can greatly benefit someone who is transferring to a new territory. 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. When it comes to employee compensation, there isnt a one-size-fits-all solution. If the nonselling administrative duties of the salesperson are of major importance, this compensation But straight commission method distinguishes between efficient and inefficient salesmen. Person A receives a salary of $80,000. Salespeople are usually paid on a straight salary compensation, in which there is no opportunity to earn incentives. nonfinancial reward: The Million Dollar Roundtable designation in the insurance industry is an example of this type of Bal.1.2.3.4.5.6.7.Bal.Cash30,000+35,00026,00015,0002,0007,20014,800+AssetsSupplies4,000+1,5003,0002,500+Land75,000+15,00090,000==LiabilitiesAccountsPayable8,000+1,5007,2002,300++MurrayKiser,Capital101,000101,000OwnersEquityMurrayKiser,Drawing2,0002,000+FeesEarned35,00035,000Expenses26,0003,00029,000. the requirement that expenses be charged and the bills sent directly to the company for payment by the accounting department. Such positions might include retail sales, restaurant employees, barbers and cosmetologists, and customer service reps. The most serious disadvantage of a straight-salary compensation plan is. And because there is no financial security that kicks in if sales arent made, those who dont earn enough leave or burn out quickly. Salary plus Commission This is one of the most reliable types of compensation plans. The most commonly used definitions of motivation include these three dimensions: Use the table below. It could reduce retention and increase turnover. their compensation plans to recognize team performance? Purely paid-by-commission plans can create an unfriendly, competitive environment within teams. \text{Symbol} & \text{Stock} & \text{High} & \text{Low} & \text{Last} & \text{Change} & \text{Volume} & \text{High} & \text{Low}\\ \hline except. \begin{array} {c} a large company purchases products from a company and ships them to its affiliates in several cities, with the selling firm's salespeople in these cities required to provide Talent poaching occurs when an employee is recruited away from one company by another. 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. This type of compensation refers to a set hourly amount without additional performance-based income. 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. But straight commission method is based on the sales effected by the salesmen and not on the time spent on the job. Good salespeople can continue to receive residual commission ever after they leave the company through negotiation. . 4. Give your reasons. Security and collaboration: The straight salary plan provides a more stress-free working environment for the salespersons. No two compensation plans are alike. Total sales for the territory are then split among the sales reps in that territory. \begin{array}{l} 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. Companies often feel they can justify a lower salary or rate if they include a more robust benefits package. direct salespeople's behavior toward the attainment of organizational objectives. 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} salesperson's total pay that is salary should be relatively low? 10. \hline\\ 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. Teams in human resources, graphic design, or other supportive departments will often use straight salary compensation. Since no one is taking out taxes for them, it is up to the contractor to budget and remit taxes quarterly to prevent a fine and a huge tax bill at year-end (April 15). 11. Although quite popular, salary compensation plans have some disadvantages. A major objective of a well-designed compensation package is to: 1. 11 Main Types of Sales Compensation Plans (With Examples) It can also be beneficial if a firm is entering a new market or location. 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. 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. Provide an opinion of which type of compensation plan you would prefer as a professional salesperson. In territory value compensation (TVC), payment is calculated based on the territory volume at the end of a period. 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. Once the salesperson has established himself in the area, the company can then switch to a performance-based compensation plan if desired. Straight salary method of remuneration is found suitable and is usually adopted under the following circumstances: 1. 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 Some disadvantages of straight salary compensation may include reduced retention and high turnover if employees dont see opportunities to increase their pay. This pay plan is the: Combination plan (Base salary + performance based commission). Salary Plus Commission: Advantages and Disadvantages This type of compensation is well-suited for employees who work in a team-based culture. The salary-plus-commission pay structure also encourages employees to set more aggressive sales goals. plan is recommended: Advantages of straight-salary compensation plans include all of the following except. Which of the following is not a form of nonfinancial compensation? 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. Before making any decisions, consider what type of compensation you can offer potential employees and what the stipulations of that compensation plan are. 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. But straight commission method does not assure any minimum income to 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 The independent contractor category is broad and includes everything from lawn services to sales to doctors and lawyers. 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. Are benefits included in the definition? Due to the complexity of the plan and its many compliance issues, few companies offer equity or stock in the short-term. In the same vein, contractors are not subject to withholding and are therefore responsible for their own taxes (the self-employment tax). Get the definitive guide to employee compensation packages and benefits in this comprehensive QuickBooks resource written by payroll expert Katey Maddux. Because they are self-employed, contractors are eligible for SEP IRAs. All of the above. For example, an employee who is going to make the same amount of money whether he sells one refrigerator or 100 is more likely to become complacent. There may be multiple rates of bonuses and commission, and payroll managers must have a system in place to keep track of everything. Part B: As a retail sales manager of a large superstore, one of your responsibilities is to train the newly hired employees. 3. Find articles, video tutorials, and more. Starting salaries often begin far enough above hourly rates to be able to afford a down payment on a house or car. 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. Everything You Need to Know About Employee Compensation Plans Because her income is stable, planning and managing her personal finances is easier. is considered a serious offense, which, if detected, often leads to termination of employment. The salesperson experiences a high level of security with a salaried sales position. salesforce include all of the following except. Companies are increasing incentives for foreign-based employment. Straight salary compensation plans are ideal in industries where the normal structure does not involve (and might even prohibit) direct sales. The major drawback to salary plus commission plans is that they are more expensive and more costly to administer. 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. For each frequency distribution, suggest "nice" bins. Employers have to think about who their target employee is and what that employee is looking for. And while some competition in the workplace is good, this kind of motivation to not only succeed but to survive can sometimes breed distrust and a lack of camaraderie. She loves training, creating processes, and introducing her clientele to new apps and technology. Its worth noting that inconsistent working hours can also hurt employees who may be counting on a consistent income. Solved An advantage of the straight salary plan for | Chegg.com Which of the following is not a guideline recommended in the management of motivation? For post-Depression-era baby boomers, the security of a steady salary is important. When the work done by the salesmen cannot be measured satisfactorily. Copyright 2023 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. , LLC in Miami, Florida. Based on this information, which salesperson compensation plan would work best? There are many people who would simply prefer to work with the relative security of a salary position. Increase sales and revenues. 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). PDF FRINGE BENEFITS AND SALARY PLAN (Exhibit A to Resolution No. 21052 As Similar to hourly employees, workers who are paid with this type of compensation are usually governed by the FLSAs nonexempt requirements and earn overtime. Employees may be confused as to how pay is calculated, so transparency is important. issue a press release detailing the company's changes. Straight salary method of remuneration is simple. These plans often include a straight salary income for training periods or during low seasons. \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 Compensation usually takes the form of monetary payment exchanged for time, labor and expertise. Straight salary offerings can also be good for attracting new talent thats concerned with stability. Straight salary refers to the basic salaries and wage given to the worker. Its critical for employers to keep this in mind when deciding between different types of compensation packages. It is not clear that offering unlimited opportunities to earn higher pay will always be an effective method for continued salesperson motivation. 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? A change from straight commission to straight salary. 3. 8. \underline{\ \ \ \ \ \ \ \ \ \ \ \ }&& \underline{-3,000} && \underline{\ \ \ \ \ \ \ \ \ \ \ \ }\\ Person A pays over $18,000 in tax and receives a net income of around $62,000. 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. 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. Which of the following is not true regarding the design of a global salesforce compensation system? The compensation is usually calculated by finding out territory volume. Many appreciate the fallback stability of the base salary paired with performance incentives. Disadvantages of straight salary compensation. The introduction of HR technology has revolutionized the way HR departments operate. Straight salary method of remuneration Meaning, Suitability, Advantages, Disadvantages. I thought wed follow up on that post by exploring the six different types of compensation plans in depth. Is your team struggling with burnout and a lack of fulfillment at work? If an employee makes no sales during a month, he doesnt get paid. If an employee is required to work on a holid ay as a regularly scheduled work day, . 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. 4. No assurance is given that the information is comprehensive in its coverage or that it is suitable in dealing with a customers particular situation. You are the sales manager of a large, multi-product company. Intuit does not endorse or approve these products and services, or the opinions of these corporations or organizations or individuals. ___________ rewards are those that are given in return for acceptable performance or effort. 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. salesperson's total pay that is salary should be relatively high? 2. Due to the complexity and compliance issues involved, very few companies offer equity or stock. For employers who dont want to pay employees after they leave, this type of compensation can incentivize employees to stay at the company. Guaranteed income With a salary plus commission plan, you still earn a base salary regardless of how many products you sell. Fringe Benefits and Salary Plan based upon the employee's rate of pay immediately preceding retirement. They may have less vacation time or even zero paid vacation time. The primary benefit of salary-plus-commission plans is they allow the compensation program to be tailored to the needs of a particular firm. Everything you need to start accepting payments for your business. It is a very useful system of remunerating newly-appointed salesmen who are new to the job. \text{Winning Team} & \text{Points} & \text{Losing Team} & \text{Points} & \text{Winning Margin}\\ How to find funding and capital for your new or growing business. virtually automatic, this form of commission rate would be appropriate: An example of a selling situation requiring a commission split would be. Overall compensation and rewards increase with the use of team selling. Incentives to Salesmen: Straight salary method does not provide any incentive to the salesmen to do hard work. 2. That means, there will not be much bad debts. What is the amount of net increase in owners equity during the month? 2. &&&& -2,000\\ 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. These can range from monetary benefits (like extra. Based on this analysis you know that a larger percentage of the salesperson's pay should be _____________ as compared to ______________ for the best results. Incentives are often seen as effective triggers when the objective is to improve the top line i.e. This form of nonfinancial reward is generally considered to be more desirable to younger salespeople Celebrating the stories and successes of real small business owners. Advantages of straight-salary compensation plans include all of the following except. Selling situations that require salespeople to perform special services for customers are more likely to be performed when salespeople are on salary. -26,000\\ Per the IRS definition, the contractor is in control of how the work gets done, so there is a lot of freedom. Advantages of salary plus commission The benefits of a salary plus commission plan include: 1. Control over Salesmen: Straight salary plan gives the management sufficient control over the salesmen. Salaried employees receive an equal portion of their annual compensation every week. How much do employees cost beyond their standard wages? Paycheck calculator for hourly and salary employees. It provides stability of earnings without wide fluctuations. manner. Whos using straight salary plus commission compensation? Once you own property, you should take steps to protect it from loss, theft, and damage. has very specific requirements for classifying and paying employees. An incentive pay cannot work in such a case. provide salespeople with trips and other rewards. finds the job to be inherently rewarding. When there are considerable seasonal variations in the sales made by the salesmen. 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. a. salaries are a fixed cost to the firm and thus tend to decrease proportionally as sales increase. Under Straight salary method, a salesman is paid remuneration on time basis. This type of compensation plan puts less pressure on individuals and fosters team-building. In most companies, the base pay is determined by the workers job title and job role. For employers, hourly employees can be a good option for work that fluctuates seasonally. The Advantages of a Straight Salary Plan for Salespeople He holds a Bachelor of Science in marketing from York College of Pennsylvania. Efficiency: Straight salary method does not distinguish between efficient and inefficient salesmen. One of your first tasks is to evaluate the level of compensation for your sales force. Whos using straight hourly compensation? \bm{=}\\ \bm{=} \\ \\ \\ \\ \\ \\ \\ \\ \\ \\ \\ \\ Therefore, employers are not required to pay overtime if employees work more than 40 hours per week. \hline \text{Purdue} & \text{76} & \text{Michigan State} & \text{70} & \text{6}\\ You also decide to pay your salespeople with the most common type of compensation plan among companies. This type of compensation plan is every salespersons dream. Employees are guaranteed to receive at least base salary to pay the bills, even during a time period when their sales are low. \\ Straight Salary Plan - Meaning & Definition | MBA Skool It helps the firm to direct the activities and efforts of the salesmen towards the cultivation of markets (i.e., creation of new customers), undertaking of window display, store demonstration, etc. 7. Benefits of salary plus commission compensation, Disadvantages of salary plus commission compensation, This type of compensation refers to a set hourly amount without additional performance-based income. What is salary pay? 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. Employees who prefer to set their own schedules or be their own boss often thrive in commission-only environments. 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. As the various salesmen on a particular scale of pay are paid the same remuneration, it avoids jealousy among the salesmen. Salespeople can be compensated in a number of different ways. total sales. Additional information and exceptions may apply. Running payroll for hourly employees, as opposed to salaried employees, can also be significantly cheaper, making it easier for companies to hit financial goals. Relevant resources to help start, run, and grow your business. It has lower turnover rates. costing little and reinforcing desirable behavior immediately after it occurs. \textbf{\textsf{Cash}} & \bm{+} & \textbf{\textsf{Supplies}} & \bm{+} & \textbf{\textsf{Land}}\\ 1. bonuses for sales target achievement), in others salespersons receive commissions as a percentage of the sales they were involved in. Under this system, rewards are not matched with efforts. compensation plans are used as a way to motivate employees. Working as a contractor definitely has its benefits. \textbf{\textsf{Liabilities}} & \bm{+} &&&\textbf{\textsf{Owner's Equity}}\\ As an hourly employee, once you work over 40 hours in a week, your employer must pay you time and a half for these hours. Salesmen have the greatest. WinningTeamArizonaDukeFloridaStateKansasKentuckyLouisvilleOklahomaStatePurdueStanfordWisconsinPoints90857578716572767776LosingTeamOregonGeorgetownWakeForestColoradoNotreDameTennesseeTexasMichiganStateSouthernCalIllinoisPoints66667057636266706756WinningMargin241952183661020. The sales teams support each other to reach a common goal. Are they just trying to pay their way through college? \\ \text{Louisville} & \text{65} & \text{Tennessee} & \text{62} & \text{3}\\ The commission can include (but is not limited to) a percentage of personal sales, a percentage of team sales, bonuses, or overtime pay. Everything you need to know about managing and retaining employees. Required fields are marked *. Of course, there are exceptions to every rule. 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. 3. 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