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Travel and entertainment costs are a relatively insignificant portion of a salesperson's compensation package. For more information on your states minimum wage requirements, read up on minimum wage requirements or visit the Department of Labors website. This can either be done through direct contact with t Are you ready for a pay raise? 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. 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. The earnings of a person who is working as an independent contractor are subject to self-employment tax.. This compensation type tends to attract fewer people since there is no secure base pay. 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. Incentives are often seen as effective triggers when the objective is to improve the top line i.e. No bonuses, no commissions, and few, if any, sales incentives. Advantages of straight-salary compensation plans include all of the following except. Resources to help you fund your small business. salesperson's total pay that is salary should be relatively low? pharmaceutical sales) is the most common type of sales process used. 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. Each is then rated on 12 factors, as shown in the table below. Which, if any, of the following sources available will help you in your task? This type of compensation refers to a set hourly amount without additional performance-based income. Help Miller rank the top three cities that BIA should consider as its new site for servicing aircraft. Straight salary plans are not popular with salespeople because: They don't provide strong incentives for extra effort. the working capital requirements are lessened with the straight-salary compensation plan. Before making any decisions, consider what type of compensation you can offer potential employees and what the stipulations of that compensation plan are. 7. This type of environment tends to foster a sense of camaraderie and can be good for company culture and morale if done well. Tips may be considered part of the employees wages, but the employer must pay no less than $2.13 an hour in direct wages and make sure that the amount of tips received is enough to meet the remainder of the hourly minimum wage. This means you can always keep earning more money if you're willing to put in some extra hours of work. Many appreciate the fallback stability of the base salary paired with performance incentives. However, a straight salary plan also has its own advantages. Copyright 2023 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. Example: Each rep in your company earns a straight salary of $75,000 a year, or $1,440 a week (gross). Employees need not be scheduled for the same number of hours each week. The directors are considering three financing plans. Which of the following conditions would indicate to the sales manager that the proportion of the 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). It does not distinguish between efficient and inefficient salesmen, as the same remuneration is paid to both efficient and inefficient salesmen. Benefits or Advantages A regular income gives the salesman a good degree of security. 3. has very specific requirements for classifying and paying employees. Operating costs are minimized during slack selling periods. Whos using straight salary compensation? Teams in human resources, graphic design, or other supportive departments will often use straight salary compensation. When the salesmen are new to the job (i.e., for remunerating the newly appointed salesmen.). What was the difference between the day's high and low for one share of Southern Copper? 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. In case the salesperson shows high sales performance, the firm increases its salary. Straight salary compensation is typically used in industries where: Missionary selling (i.e. total sales. Salary plus commission is a balance of both stability and performance-based income. 2. \text{Kentucky} & \text{71} & \text{Notre Dame} & \text{63} & \text{8}\\ She loves training, creating processes, and introducing her clientele to new apps and technology. In this situation, employers have to pay overtime, despite the employee being salaried. \\ Employers who pay by the hour should focus on increasing morale and showing employees they are valued in order to avoid turnover. 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. 3. Plan B is to issue 100,000 shares of common stock. \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}}\\ . \text{Arizona} & \text{90} & \text{Oregon} & \text{66} & \text{24}\\ 3. A fixed dollar amount is paid for each day or week in the field. By accessing and using this page you agree to the Terms and Conditions. So, it can be easily understood by all salesmen. \\ +35,000\\ But under the straight commission method, sales costs are matched with sales. Katey Maddux is a paddle boarder, music lover, Zumba instructor, and Founder and CEO ofMillennial Accounting, LLC in Miami, Florida. 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. Salespeople can be compensated in a number of different ways. 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. \end{array} According to your text, which benefit is offered by the greatest percentage of companies? 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. 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). The tools and resources you need to get your new business idea off the ground. bell-shaped distribution. As the Vice President of Sales for a new startup company, you decide to hire and train your own field sales force. Take a reactive approach to seeking out motivational problems and sources of frustration in the salesforce. The advantages of straight salary compensation include which of the following? Straight salary method of remuneration is simple. Because they are self-employed, contractors are eligible for SEP IRAs. Formal recognition programs have a better chance of success if sales managers do all of the following 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. The importance of the salesperson's personal skills in making sales is slight. Some disadvantages of straight salary compensation may include reduced retention and high turnover if employees dont see opportunities to increase their pay. You think you have finally selected a compensation method and wage level that meets your boss's requirements. \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 \text{Kansas} & \text{78} & \text{Colorado} & \text{57} & \text{21}\\ Employers have to think about who their target employee is and what that employee is looking for. they contribute little to company loyalty, resulting in potential salesforce control problems. Which of the following conditions would indicate to the sales manager that the proportion of the Part B: As a retail sales manager of a large superstore, one of your responsibilities is to train the newly hired employees. \text{Oklahoma State} & \text{72} & \text{Texas} & \text{66} & \text{6}\\ Are you ready for a pay raise? Companies looking for long-term growth as opposed to short-term sales may opt for this type of compensation as well. You can tweak the budget annually by deciding whether the business has flourished enough to offer merit raises. Among the drawback(s) you will discuss include: You have read a "want ad" in the latest edition of Marketing News. Find articles, video tutorials, and more. Sales Costs: Under the straight salary method, sales costs are not matched with the sales. If a salesperson earns more commissions than he was paid, he keeps the extra money. It looks like its raining raises in corporate Japan as more and more companies are following in the footsteps of Uniqlo and announci Human Resources (HR) departments have evolved significantly over the past few years. Is it just monetary? Depending on a companys compensation strategy, there are both pros and cons for hourly versus salaried employees. Provide equal pay to all employees at the same level. Control over Salesmen: Straight salary plan gives the management sufficient control over the salesmen. \\ Hourly roles can often be perceived as less valuable or easier to replace. This form of nonfinancial reward is generally considered to be more desirable to younger salespeople \begin{array} {c} Employers are also required to pay employees the. Basis: Straight salary method is based on the time spent on the job, and not on the volume of sales effected by the salesmen. \text{Winning Team} & \text{Points} & \text{Losing Team} & \text{Points} & \text{Winning Margin}\\ 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. Overall compensation and rewards increase with the use of team selling. 1. For employers, hourly employees can be a good option for work that fluctuates seasonally. 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. Person A pays over $18,000 in tax and receives a net income of around $62,000. 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. Hence, this concludes the definition of Straight Salary Plan along with its overview. \text{ } & \text{ } & \text{52-Week} & \text{52-Week} & \text{ } & \text{ } & \text{Sales} & \text{ } & \text{ }\\ She loves training, creating processes, and introducing her clientele to new apps and technology. From a morale perspective, they can be more satisfied with their work-life balance since no one is dictating it. The most serious disadvantage of a straight-salary compensation plan is. A common salary-to-commission ratio is 60:40 (60 percent fixed / 40 percent variable). Intuit accepts no responsibility for the accuracy, legality, or content on these sites. What change in the firm's salesforce reward system might be in response to customer's needs? In fields that typically involve commissions, the outside sales exemption and the retail sales exemption may also apply. As the remuneration of the salesmen under this method does not depend upon the volume of sales made by them, the salesmen will not be reckless in increasing their sales by selling to every customer on credit. Further, the straight commission motivates poor performers to become more productive since it rewards good performers (Johnston and Marshall, p. 329). 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. Due to the complexity of the plan and its many compliance issues, few companies offer equity or stock in the short-term. is considered a serious offense, which, if detected, often leads to termination of employment. 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. 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. 5. No two compensation plans are alike. From a payroll standpoint, this type of compensation is harder to administer. \begin{array}{l} 5. Let's explain the benefits with a clear example of an unpackaged salary versus an FBT exempt salary package. What is the amount of net increase in owners equity during the month? When it comes to employee compensation, there isnt a one-size-fits-all solution. The importance of the salesperson's personal skills in making sales is considerable. Give your reasons. Provide an opinion of which type of compensation plan you would prefer as a professional salesperson. \hline You have a meeting with her to outline the drawback(s) of this type of plan . System is easy to understand and compute. In these situations, it can be difficult to determine who contributed most to attaining the sale, making a commission plan difficult to administer. 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. -2,000\\ $$ 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. So what is compensation? 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. The advantages of straight salary compensation include which of the following? 1. Your ultimate goal is to control selling expense and provide extra rewards for added results. In some organizations, selling is a collaborative effort. The directors, who strongly wish to retain family control of the company, must consider issuing securities to outsiders. 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 They may have less vacation time or even zero paid vacation time. This can lead to high turnover, a need for more recruitment resources, and higher training costsall of which cuts into potential bottom-line savings. determine the relative amounts to be paid in salary, commission, and bonus. Salespeople may also be paid on a straight salary basis in which there is no opportunity to earn incentives. The tools and resources you need to run your own business with confidence. 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. Minimum Income: Straight salary method assures a minimum income to the salesmen. compensation plans are used as a way to motivate employees. . Under this method, there is no direct relationship between sales revenue and selling costs. But straight commission method distinguishes between efficient and inefficient salesmen. A straight salary can greatly benefit someone who is transferring to a new territory. Compensation plans, once set, do not need to be evaluated to determine if it will negatively affect salespeople's wages and total costs. A straight salary can work well for sales positions for which a high focus on service is required, such as a salesperson who calls on retail stores on a regular basis to take orders and stock merchandise. The importance of matching the abilities and needs of sales recruits to the ____ cannot be overstated. With this type of structure, you'd pay your sales people a straightalbeit competitivesalary like all of your other employees, and nothing else. For example, consider a salesman who frequents various retail stores or department stores to check inventory or take orders for replenishment. \text{Wisconsin} & \text{76} & \text{Illinois} & \text{56} & \text{20}\\ The company sets a minimum and maximum range that can increase, decrease or remain the same, depending on the workers performance. Here Are the Pros of Straight Commission. 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. Intuit Inc. does not have any responsibility for updating or revising any information presented herein. 100% (2 ratings) FALSE because straight salary can make all sales reps equivalent individuals, which is best when th . 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. Once you own property, you should take steps to protect it from loss, theft, and damage. Celebrating the stories and successes of real small business owners. It is often used in direct sales industries and multi-level marketing (MLM) firms that work with independent contractors. You also decide to pay your salespeople with the most common type of compensation plan among companies. The latest product innovations and business insights from QuickBooks. 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. direct salespeople's behavior toward the attainment of organizational objectives. If an employee makes no sales during a month, he doesnt get paid. The sales numbers are added up and all commissions are split equally among all sales professionals. Sparks holds a Bachelor of Arts in business. A job like this is more likely to have flexible working hours or the ability to work from home. a. salaries are a fixed cost to the firm and thus tend to decrease proportionally as sales increase. the following except. An in-depth guide for business owners, Financial statements: What business owners should know, Small business grants: 20+ grants and resources to fund your future without debt, How to choose the best payment method for small businesses. In most companies, the bonus is usually tied to a budgetor other target that has little significance to the employee. 8. One advantage of hourly pay is your eligibility for overtime. Topical articles and news from top pros and Intuit product experts. 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. Usually, the type of compensation plan an organization chooses, and the type that an individual accepts, depends on the market conditions and the goals of those involved. The advantages of straight salary compensation include which of the following? Which one of the following statements regarding global compensation is false? except. PMR-based compensation often encourages loyalty among employees, but it will also require long-term incentives to retain talent. That means, there will not be much bad debts. , a pet-friendly working environment, etc.). 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. Q&A With Jane Advantages to Salesperson: The salesperson feels free from financial uncertainties because of stable income inflow. Offer your support. The economy has entered a period of recession, and even the Administration's economists predict that it will remain so for at least three more quarters. 8,000 && 101,000\\ Accordingly, the information provided should not be relied upon as a substitute for independent research. Similar to hourly employees, workers who are paid with this type of compensation are usually governed by the FLSAs nonexempt requirements and earn overtime. b. Ages of 50 airplane passengers (xmin=12,xmax=85)\left(x_{\min }=12, x_{\max }=85\right)(xmin=12,xmax=85). Purely paid-by-commission plans can create an unfriendly, competitive environment within teams. nonfinancial reward: The Million Dollar Roundtable designation in the insurance industry is an example of this type of Explore the trend of creative job titles in the job market and how they are reshaping the way we view and define roles in the workforce. Once the person has established himself in the area, the company can switch to performance-based salary. 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. How much investment capital should you accept? In this type of compensation, income is solely based on sales made. Lavish formal recognition programs can provide all of the following benefits to a salesforce except. It has lower turnover rates. On the other hand, under the straight commission method, salesmens rewards are matched with their efforts. A salesperson makes the initial contact and sets the stage for the sale, while others such as product experts or management personnel are brought in to help him close the deal. Happy hours are a great way to connect with colleagues, share experiences, and have some fun together. They receive fixed sums of money at regular intervals (usually each month). Compensation rewards might include all of the following except. 7. Contractors are required to find health insurance and retirement plans on their own. According to your text, what would you do next? Provide a mix of both compensation and noncompensation rewards comparable to other firms. 4. If an employee is required to work on a holid ay as a regularly scheduled work day, . 3. Provide an opinion of which type of compensation plan you would prefer as a professional salesperson. It provides stability of earnings without wide fluctuations. Employees who receive it are considered nonexempt by the FLSA, meaning their compensation is regulated. In most companies, the base pay is determined by the workers job title and job role. tend to produce too many salesforce objectives which are of the crisis-resolution variety. Such positions might include retail sales, restaurant employees, barbers and cosmetologists, and customer service reps. 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The independent contractor category is broad and includes everything from lawn services to sales to doctors and lawyers. Straight salary method of remuneration is simple. Which of the following is not an advantage of the commission compensation plan? In a profit margin/revenue-based (PMR) plan, employees are compensated based on the profitability of the company. 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.