advantages of straight salary plan

Following are the advantages of the straight commission plan: Pay relates directly to performance and results achieved. Different companies offer different compensation plans to their sales representatives- the straight salary plan being one of the simplest. Happy hours are a great way to connect with colleagues, share experiences, and have some fun together. \\ 10. 5. \text{Kentucky} & \text{71} & \text{Notre Dame} & \text{63} & \text{8}\\ &&&& -2,000\\ Information Technology Project Management: Providing Measurable Organizational Value, Service Management: Operations, Strategy, and Information Technology, John David Jackson, Patricia Meglich, Robert Mathis, Sean Valentine, Chapter 10 - Motivating and Satisfying Employ. not, explain. Employers are often hesitant to use this type of compensation, as payroll expenses can be high or unpredictable. except: make it easy enough to allow for a majority of the salesforce to win. Are they just trying to pay their way through college? Let's explain the benefits with a clear example of an unpackaged salary versus an FBT exempt salary package. But straight commission method provides sufficient incentive to the salesmen to do hard work. has very specific requirements for classifying and paying employees. In this type of compensation, income is solely based on sales made. Take a reactive approach to seeking out motivational problems and sources of frustration in the salesforce. You think you have finally selected a compensation method and wage level that meets your boss's requirements. The most common exemptions are executive, administrative, and professional exemptions. 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. A major objective of a well-designed compensation package is to: 1. Salary plus commission is a balance of both stability and performance-based income. \text{Purdue} & \text{76} & \text{Michigan State} & \text{70} & \text{6}\\ 2. 4. Profit margin is one of the most popular types of compensation used by start-up companies. Using the mean and standard deviation found in part (a), their compensation plans to recognize team performance? In these situations, it can be difficult to determine who contributed most to attaining the sale, making a commission plan difficult to administer. Its worth noting that inconsistent working hours can also hurt employees who may be counting on a consistent income. 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. An incentive pay cannot work in such a case. Straight salary method promotes team-spirit and cooperation among the salesmen in the case of joint sales. As the name suggests, straight salary compensation is just what you would expect. Salaried workers who earn more than $23,660 per year are considered exempt under the Fair Labor Standards Act (FLSA). 7. Celebrating the stories and successes of real small business owners. 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. You have a meeting with her to outline the drawback(s) of this type of plan . Person A pays over $18,000 in tax and receives a net income of around $62,000. Salesmen have the greatest. Formal recognition programs have a better chance of success if sales managers do all of the following Sadly, employers are usually reluctant to offer a residual commission deal to 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. , LLC in Miami, Florida. 3. 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). In the same vein, contractors are not subject to withholding and are therefore responsible for their own taxes (the self-employment tax). 1. The tools and resources you need to manage your mid-sized business. It is not clear that offering unlimited opportunities to earn higher pay will always be an effective method for continued salesperson motivation. As it assures a certain minimum income (the living wage) to the salesmen regularly, it creates a feeling of security in the minds of the salesmen. Security and collaboration: The straight salary plan provides a more stress-free working environment for the salespersons. Salary programs are most appropriate when it is difficult to relate the efforts of individual salespeople to the size or timing of a sale. 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. So, it can be easily understood by all salesmen. However, if the employees commissions, plus their hourly rate, are together less than the minimum wage, the employer is required to make up the difference. This can lead to high turnover, a need for more recruitment resources, and higher training costsall of which cuts into potential bottom-line savings. 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). estimate the percentage of all NCAA games in which the winning team scores 84 or These can range from monetary benefits (like extra. 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. Expert Answer. Employees who receive it are considered nonexempt by the FLSA, meaning their compensation is regulated. An advantage of the straight salary plan for compensating salespeople is that it: Provides a direct relationship between sales and expenses. Accounting and bookkeeping basics you need to run and grow your business. 40 Questions to Ask Before You Accept A Job Offer. Some of this is likely due to a generational shift in what employees are really looking for. Control over Salesmen: Straight salary plan gives the management sufficient control over the salesmen. salesperson's total pay that is salary should be relatively low? \text{Stanford} & \text{77} & \text{Southern Cal} & \text{67} & \text{10}\\ 2. The independent contractor category is broad and includes everything from lawn services to sales to doctors and lawyers. Talent poaching occurs when an employee is recruited away from one company by another. 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 \\ Offers considerable incentive for the salespeople. 9. \begin{array} {rcrcrcrcr} One advantage of hourly pay is your eligibility for overtime. TVC is most often used in team-based corporate cultures. Relevant resources to help start, run, and grow your business. 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. They want to know precisely how much money they're going to make each month and to feel as though that income is dependable. Corporate industries and IT sales, for example, often use this type of compensation when creating bonus plans. In most companies, the base pay is determined by the workers job title and job role. According to your text, which benefit is offered by the greatest percentage of companies? How much you spend on salaries often has little to do with your profits. Get help with QuickBooks. At the end of the pay period, this prepayment is drawn from how much the salesperson earned in commissions. A salaried compensation plan can help promote a sense of teamwork needed to close these more complex transactions. more points. \end{array} 3. Straight salary method of remuneration is simple. -7,200\\ $$ From a morale perspective, they can be more satisfied with their work-life balance since no one is dictating it. 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). Companies are increasing incentives for foreign-based employment. One benefit, from the employers perspective, is the company only pays commissions when the top line improves, so its beneficial from a profitability standpoint. \text{Bal. Help Miller rank the top three cities that BIA should consider as its new site for servicing aircraft. Employees need not be scheduled for the same number of hours each week. Employers are also required to pay employees theminimum wage, which can vary depending on their states minimum wage. She helps HR professionals identify issues with their talent management and employment law. Provide an opinion of which type of compensation plan you would prefer as a professional salesperson. In fields that typically involve commissions, the outside sales exemption and the retail sales exemption may also apply. Some terms may not be used. Startup companies using profit margin/revenue based compensation plan can also incorporate long-term incentives such as stock to build loyalty and a valuable sales base. Everything you need to start accepting payments for your business. Which of the following accurately describe per diem expense plans? Are benefits included in the definition? \text{Symbol} & \text{Stock} & \text{High} & \text{Low} & \text{Last} & \text{Change} & \text{Volume} & \text{High} & \text{Low}\\ \hline So, it does not encourage salesmen to do hard work. Payroll essentials you need to run your business. This content is for information purposes only and should not be considered legal, accounting, or tax advice, or a substitute for obtaining such advice specific to your business. The importance of the salesperson's personal skills in making sales is slight. -26,000\\ Travel and entertainment costs are a relatively insignificant portion of a salesperson's compensation package. 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. Employers may use this type of compensation to keep payroll expenses low while still motivating employees to perform. \text{Duke} & \text{85} & \text{Georgetown} & \text{66} & \text{19}\\ Management can direct Salesforceinto various activities more easily. Applicable laws may vary by state or locality. Laws differ by state, so do your research before making any decisions. No assurance is given that the information is comprehensive in its coverage or that it is suitable in dealing with a customers particular situation. && +1,500\\ Is it just monetary? they contribute little to company loyalty, resulting in potential salesforce control problems. Sales force compensation should not only meet the goals of the firm, but should also communicate to the sales force what is important. Whos using straight hourly compensation? The sales teams support each other to reach a common goal. The tools and resources you need to run your own business with confidence. What change in the firm's salesforce reward system might be in response to customer's needs? 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. costing little and reinforcing desirable behavior immediately after it occurs. In case the salesperson shows high sales performance, the firm increases its salary. 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 So what is compensation? Provide an opinion of which type of compensation plan you would prefer as a professional salesperson. The earnings of a person who is working as an independent contractor are subject to self-employment tax.. While in certain compensation plans, the salespersons receive benefits on accomplishment for specific tasks (e.g. 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. The workplace catchphrase you need to know. A fixed dollar amount is paid for each day or week in the field. 4. Additionally, they have full control over benefits like insurance and retirement management. As the various salesmen on a particular scale of pay are paid the same remuneration, it avoids jealousy among the salesmen. 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.). compensation plans are used as a way to motivate employees. 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." You now require the sales force to sell $35,000 worth of product each month to make a commission. The straight salary plan is one of the simplest compensation plans that companies offer to their employees, particularly sales representatives. ___________ rewards are those that are given in return for acceptable performance or effort. Straight salary offerings can also be good for attracting new talent thats concerned with stability. 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. 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. Another disadvantage is the lack of benefits. Which of the following is not a form of nonfinancial compensation? Long ago, we wrote about the importance of a compensation plan in an organization. The introduction of HR technology has revolutionized the way HR departments operate. The advantages of straight salary compensation include which of the following? 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. direct salespeople's behavior toward the attainment of organizational objectives. The location selection is critical, and with the potential for 4,000 new skilled blue-collar jobs on the line, virtually every city in western Europe is actively bidding for BIA's business. When the salesmen are required to create markets for a product. Before making any decisions, consider what type of compensation you can offer potential employees and what the stipulations of that compensation plan are. 12. According to the text, which of the following is not one of the rewards typically offered to salespeople? On a straight salary, they will be paid this regardless of how many deals they close. 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. Operating costs are minimized during slack selling periods. Because her income is stable, planning and managing her personal finances is easier. Millennial Accounting primarily serves two nichesreal estate and property managementand is on a mission to serve, inspire, educate, and problem-solve. 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. 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 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. Each line designated by a number indicates the effect of a transaction on the equation. Today, January 26, 2004). 5. Once the person has established himself in the area, the company can switch to performance-based salary. Which of the following is not a guideline for optimizing the use of sales contests? System is easy to understand and compute. This article has been researched & authored by the Business Concepts Team. A common salary-to-commission ratio is 60:40 (60 percent fixed / 40 percent variable). In territory value compensation (TVC), payment is calculated based on the territory volume at the end of a period. These have a significantly higher (pre-tax) contribution limit than company IRAs. View the full answer. \underline{\ \ \ \ \ \ \ \ \ \ \ \ }&& \underline{-3,000} && \underline{\ \ \ \ \ \ \ \ \ \ \ \ }\\ Before making any decisions, consider what type of compensation you can offer potential employees and what the stipulations of that compensation plan are. This requires very clearly defined territory outlines and territories that produce enough income to support competitive wages. There is no additional performance or sales-based income added to the employees compensation. In this situation, employers have to pay overtime, despite the employee being salaried. 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. 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. They don't want to worry about the inconsistencies associated with a commission-based pay. As the Vice President of Sales for a new startup company, you decide to hire and train your own field sales force. \text{Arizona} & \text{90} & \text{Oregon} & \text{66} & \text{24}\\ The most commonly used definitions of motivation include these three dimensions: Use the table below. In this compensation structure, the employee receives a set hourly rate, plus a percentage of their sales. Many appreciate the fallback stability of the base salary paired with performance incentives. It gives greater control to the management over the salesmen by means of withholding increments, effecting a transfer, etc. Employees who receive it are considered nonexempt by the FLSA, meaning their compensation is regulated. Companies looking for long-term growth as opposed to short-term sales may opt for this type of compensation as well. Tax basics you need to stay compliant and run your business. 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. What was the difference between the day's high and low for one share of Southern Copper? You can tweak the budget annually by deciding whether the business has flourished enough to offer merit raises. Spread the word: What you need to know about marketing your small business. Although quite popular, salary compensation plans have some disadvantages. Is good for a financially weak company. The most serious disadvantage of a straight-salary compensation plan is. These plans often include a straight salary income for training periods or during low seasons. Subscribe to our newsletter and stay updated on the latest HR news and trends. That means, there will not be much bad debts. 6. Increment is given annually as per the scale of pay, and after a certain number of years of service, salesman is promoted to a higher scale of pay. For post-Depression-era baby boomers, the security of a steady salary is important. elect to receive regular straight time pay or bank compensatory time at their straight time rate. 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. \begin{array} {c} Salespeople are usually paid on a straight salary compensation, in which there is no opportunity to earn incentives. 2. But straight commission method distinguishes between efficient and inefficient salesmen. The content on MBA Skool has been created for educational & academic purpose only. 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 importance of the salesperson's personal skills in making sales is considerable. Part A: Compare the advantages and disadvantages of straight salary and straight commission compensation plans. +1,500\\ PMR is common in sales and is good for startups with low liquidity. 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. Employees may be confused as to how pay is calculated, so transparency is important. 2. 2. . Offer your support. 5. One regulation is employers are required to, at 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). scores more than 90 points. The ideal compensation plan motivates salespeople to achieve their own and the company's objectives. Employers have to think about who their target employee is and what that employee is looking for. A salesperson who is intrinsically motivated. Get the definitive guide to employee compensation packages and benefits in this comprehensive QuickBooks resource written by payroll expert Katey Maddux. Although many customers expect after-sale service on repair parts and delivery, compensation programs based on straight salary are not likely to encourage these important follow-up activities. Advantages to Salesperson: The salesperson feels free from financial uncertainties because of stable income inflow. \textbf{\textsf{Accounts}} && \textbf{\textsf{Murray Kiser,}} && \textbf{\textsf{Murray Kiser,}} && \textbf{\textsf{Fees}} \hspace{6pt}\\ 5. On the other hand, when you pay commission, you pay when an employee does something to cause your business to see a profit. 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. Katey Maddux is a paddle boarder, music lover, Zumba instructor, and Founder and CEO ofMillennial Accounting, LLC in Miami, Florida. Match the terms with the definitions. However, successful salespeople tend to make a lot of money with commission than with a salary plus commission job. Cost of Administration: The cost of administration of straight salary plan is less than that of straight commission plan. 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. It tends to eliminate or reduce high-pressure selling, i.e., pushing items which are not needed by the customers. 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. Many millennials, however, are more focused on work-life balance and lifestyle plans, valuing more vacation or the freedom to work from home. . Based on this information, which salesperson compensation plan would work best? Employees are guaranteed to receive at least base salary to pay the bills, even during a time period when their sales are low. Review the example home inventory shown before. Straight salary offerings can also be good for attracting new talent that's concerned with stability. If so, an hourly rate with a flexible schedule could be more attractive. Which of the following is not an advantage of combination plans? Part B: As a retail sales manager of a large superstore, one of your responsibilities is to train the newly hired employees. Provide equal pay to all employees at the same level. It assures a steady minimum income to the salesmen. Purely paid-by-commission plans can create an unfriendly, competitive environment within teams. ii) There will be no surprise of payroll expenses. \hline\\ It assures a steady minimum income to the salesmen. 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. Once the person has established himself in the area, the company can switch to performance-based salary. Another advantage of this pay structure is that it helps in attracting more talent . Such a plan is quite common in the services industry as well as in the industrial goods sector. 6. Intuit, QuickBooks, QB, TurboTax, Mint, Credit Karma, and Mailchimp are registered trademarks of Intuit Inc. 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. 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? -2,000\\ What is the amount of net increase in owners equity during the month? For each frequency distribution, suggest "nice" bins. In this plan, you will pay a straight salary to your employees and no commission, no bonus, and no incentives. When there are considerable seasonal variations in the sales made by the salesmen. 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} 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. Helps management to control salespeople's activities. In most companies, the bonus is usually tied to a budgetor other target that has little significance to the employee. 8,000 && 101,000\\

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