advantages of straight salary plan

Straight Salary Compensation. These have a significantly higher (pre-tax) contribution limit than company IRAs. What are the most popular types of compensation packages? This type of compensation is well-suited for employees who work in a team-based culture. In this situation, employers have to pay overtime, despite the employee being salaried. Incentives to Salesmen: Straight salary method does not provide any incentive to the salesmen to do hard work. One of your first tasks is to evaluate the level of compensation for your sales force. a. We dont want you to miss anything. It tends to only attract less experienced staff who want a "safe" pay structure. \end{array} Efficiency: Straight salary method does not distinguish between efficient and inefficient salesmen. 2. 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. -7,200\\ \text{Purdue} & \text{76} & \text{Michigan State} & \text{70} & \text{6}\\ 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. Employees earning salary plus commission will have higher income tax rates than a self-employed agent. Your email address will not be published. By creating a feeling of security in the minds of the salesmen, it maintains high morale among the sales force. \text{Kentucky} & \text{71} & \text{Notre Dame} & \text{63} & \text{8}\\ When the salesmen are required to create markets for a product. Long ago, we wrote about the importance of a compensation plan in an organization. Because they are self-employed, contractors are eligible for SEP IRAs. Straight salary plans often do not provide strong incentive for extra effort. 4. The latest product innovations and business insights from QuickBooks. 11. In addition, employers also enjoy the flexibility of being able to increase or decrease employee hours seasonally or to reflect sales growth.a. Wage caps are used by some firms to prevent salespeople from making too much money. -15,000 &&&& +15,000\\ Talent poaching occurs when an employee is recruited away from one company by another. 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. Straight salary method of remuneration is simple. You were given the mandate by your boss to change the compensation plan so that the total salesperson compensation (salary plus commission) is lowered. Salespeople may also be paid on a straight salary basis in which there is no opportunity to earn incentives. \textbf{\textsf{Liabilities}} & \bm{+} &&&\textbf{\textsf{Owner's Equity}}\\ You are the sales manager of a large, multi-product company. So, it does not encourage salesmen to do hard work. A straight salary plan can be advantageous in certain situations. But straight commission method distinguishes between efficient and inefficient salesmen. How to start a business: A practical 22-step guide to success, How to write a business plan in 10 steps + free template, What is cash flow? 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. This can either be done through direct contact with t Are you ready for a pay raise? It does not provide any incentive for hard work. What change in the firm's salesforce reward system might be in response to customer's needs? An incentive pay cannot work in such a case. The different types of compensation include . Which of the following statements regarding changes in the reward system is false? O True O False. 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. \text{Winning Team} & \text{Points} & \text{Losing Team} & \text{Points} & \text{Winning Margin}\\ compensation plans are used as a way to motivate employees. Salary plus Commission This is one of the most reliable types of compensation plans. 2. Provide equal pay to all employees at the same level. As defined by the IRS, independent contractors are people who are in an independent trade, business, or profession in which they offer their services to the general public. Employees and independent contractors are mutually exclusive, as a person is either one or the other. Additionally, they have full control over benefits like insurance and retirement management. 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. 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. Cost of Administration: The cost of administration of straight salary plan is less than that of straight commission plan. 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). a. salaries are a fixed cost to the firm and thus tend to decrease proportionally as sales increase. 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. The compensation plan in which virtually every type of sales activity is rewarded, is called a: Your boss thinks you should implement a salary plus commission plan with an incentive ceiling. If an employee makes no sales during a month, he doesnt get paid. costing little and reinforcing desirable behavior immediately after it occurs. One advantage of hourly pay is your eligibility for overtime. Paycheck calculator for hourly and salary employees. Which of the following is not a guideline for optimizing the use of sales contests? \\ After initial investigations by Holmes Miller, head of the Operations Department, BIA has narrowed the list to 9 cities. Companies often feel they can justify a lower salary or rate if they include a more robust benefits package. \\ This requires very clearly defined territory outlines and territories that produce enough income to support competitive wages. 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. \text{Florida State} & \text{75} & \text{Wake Forest} & \text{70} & \text{5}\\ the working capital requirements are lessened with the straight-salary compensation plan. And because there is no financial security that kicks in if sales arent made, those who dont earn enough leave or burn out quickly. When more than one individual works together to make a sale, the selling process is described as: You have just been promoted to the position of sales manager. direct salespeople's behavior toward the attainment of organizational objectives. The directors, who strongly wish to retain family control of the company, must consider issuing securities to outsiders. When the salesmen are new to the job (i.e., for remunerating the newly appointed salesmen.). 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. Straight salary offerings can also be good for attracting new talent thats concerned with stability. Celebrating the stories and successes of real small business owners. 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.). 6. \text{Louisville} & \text{65} & \text{Tennessee} & \text{62} & \text{3}\\ 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. Salary plus commission is a balance of both stability and performance-based income. 3. The importance of matching the abilities and needs of sales recruits to the ____ cannot be overstated. But straight commission method is based on the sales effected by the salesmen and not on the time spent on the job. 2. The workplace catchphrase you need to know. 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 Provide an opinion of which type of compensation plan you would prefer as a professional salesperson. Changing from a straight salary plan to a combination salary plus commission plan provides a number of benefits. -26,000\\ The companys income tax rate is 35%. , LLC in Miami, Florida. 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. Happy hours are a great way to connect with colleagues, share experiences, and have some fun together. Increase sales and revenues. Some of this is likely due to a generational shift in what employees are really looking for. 3. Overall compensation and rewards increase with the use of team selling. 3. Which of the following is not an advantage of the . 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. With this type of structure, you'd pay your sales people a straightalbeit competitivesalary like all of your other employees, and nothing else. Advantages of salary plus commission The benefits of a salary plus commission plan include: 1. 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. ____________ is the easiest plan to administer and budget for. has very specific requirements for classifying and paying employees. The advantages of straight salary compensation include which of the following? Jobs report: Are small business wages keeping up with inflation? You have a meeting with her to outline the drawback(s) of this type of plan. && +1,500\\ The company sets a minimum and maximum range that can increase, decrease or remain the same, depending on the workers performance. 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. We provide third-party links as a convenience and for informational purposes only. At the end of the pay period, this prepayment is drawn from how much the salesperson earned in commissions. 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. Although quite popular, salary compensation plans have some disadvantages. According to compensation surveys, ales managers typically earn less than the top reps in their district when sales reps are on an incentive-based plan. Motivated salespeople may search for this type of income, knowing that if they work really hard early on, they can work less later and still make the same income. Compensation rewards might include all of the following except. Perhaps the most serious shortcoming of straight-commission plans is that. &&\textbf{\textsf{Assets}}\\ 7. Teams in human resources, graphic design, or other supportive departments will often use straight salary compensation. \begin{array}{l} This type of environment tends to foster a sense of camaraderie and can be good for company culture and morale if done well. \text{Arizona} & \text{90} & \text{Oregon} & \text{66} & \text{24}\\ 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. Working as a contractor definitely has its benefits. Straight salary compensation plans are ideal in industries where the normal structure does not involve (and might even prohibit) direct sales. 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). An advantage of the straight salary plan for compensating salespeople is that it: Provides a direct relationship between sales and expenses. While in certain compensation plans, the salespersons receive benefits on accomplishment for specific tasks (e.g. It gives greater control to the management over the salesmen by means of withholding increments, effecting a transfer, etc. However, successful salespeople tend to make a lot of money with commission than with a salary plus commission job. This means you can always keep earning more money if you're willing to put in some extra hours of work. 4. As a business owner it can be a challenge to figure out how to compensate employees. Such a plan is quite common in the services industry as well as in the industrial goods sector. If theyve just started a family, they may be looking for benefits like parental leave and the chance to work from home. Offers considerable incentive for the salespeople. 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. . Once you own property, you should take steps to protect it from loss, theft, and damage. 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 advantages of straight salary compensation include which of the following? 8. They don't want to worry about the inconsistencies associated with a commission-based pay. Based on this information, which salesperson compensation plan would work best? 5. The most common exemptions are executive, administrative, and professional exemptions. Plan B is to issue 100,000 shares of common stock. TVC is most often used in team-based corporate cultures. 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. The straight salary plan is one of the simplest compensation plans that companies offer to their employees, particularly sales representatives. So what is compensation? The reward system practiced by the majority of consumer and industrial firms is, Industries that have traditionally used a straight-commission-based compensation pay plan include all of On the other hand, under the straight commission method, salesmens rewards are matched with their efforts. A change from straight commission to straight salary. For each frequency distribution, suggest "nice" bins. If a salesperson earns more commissions than he was paid, he keeps the extra money. 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. A per diem expense plan pays the salesperson for all reported expenses. https://quickbooks.intuit.com/r/payroll/employee-compensation-benefits-guide/. Fringe Benefits and Salary Plan based upon the employee's rate of pay immediately preceding retirement. issue a press release detailing the company's changes. except. Therefore, employers are not required to pay overtime if employees work more than 40 hours per week. Which one of the following statements regarding global compensation is false? Everything you need to prepare for and have a successful holiday season. Using the mean and standard deviation found in part (a), In most companies, the base pay is determined by the workers job title and job role. 5. A common salary-to-commission ratio is 60:40 (60 percent fixed / 40 percent variable). "USA Today": Finding What Motivates Your Employees. A commission plus bonus plan is particularly suited to a company that uses brokers or independent sales reps. Companies wanting to exert some longer term behavioral control using incentives should make sure that the incentive component is between 15 and 30 percent of total compensation. As salesmens remuneration is not related to the volume of sales made by them, this method imposes a serious burden on the earnings of the firm in terms of sales. But when that same group opened up about things that weren't essential to the negotiation, 59 percent were able to strike a deal. The salary-plus-commission pay structure also encourages employees to set more aggressive sales goals. Employees who receive it are considered nonexempt by the FLSA, meaning their compensation is regulated. Under this system, rewards are not matched with efforts. Readers should verify statements before relying on them. 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). This article has been researched & authored by the Business Concepts Team. A job like this is more likely to have flexible working hours or the ability to work from home. 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. Offer your support. Differences between Straight Salary and Straight Commission Method, Business Environment Analysis | Objectives & Process, 5 Important Classification of Business Environment, Localisation of Industries | Meaning, Advantages, Disadvantages, Storage and Warehousing | Meaning, Functions, Advantages, Kinds, Sole Trader Business | Advantages | Disadvantages | Suitability, How do Business Diversification affect performance of, Job Evaluation | Meaning & Definition |, Supervision | Definition | Functions of supervisor, Sole Trader Business | Meaning | Definition, Primary functions of Commercial banks in accepting, RBI | Origin | Objectives | Organization, Concepts of Job Analysis | Meaning, Procedure,, Arguments in favor of Social Responsibility of, Accountlearning | Contents for Management Studies |. According to the Customer-Product Matrix, sales positions that focus primarily on new business development require a greater proportion of salary than incentive. 8. Provide an opinion of which type of compensation plan you would prefer as a professional salesperson. Is it just monetary? In these situations, it can be difficult to determine who contributed most to attaining the sale, making a commission plan difficult to administer. You also decide to pay your salespeople with the most common type of compensation plan among companies. \bm{=}\\ \bm{=} \\ \\ \\ \\ \\ \\ \\ \\ \\ \\ \\ \\ Incentives are often seen as effective triggers when the objective is to improve the top line i.e. The tools and resources you need to take your business to the next level. Purely paid-by-commission plans can create an unfriendly, competitive environment within teams. It is usually easy to design pay plans that fully meet the goals and needs of the firm, customers, and salespeople. You have a meeting with her to outline the drawback(s) of this type of plan . Defined by the FLSA, tipped employees are those who receive more than $30 per month in tips. Efficiency: Straight salary method does not distinguish between efficient and inefficient salesmen. Example: Each rep in your company earns a straight salary of $75,000 a year, or $1,440 a week (gross). In this sense, compensation is a counterbalance. \hline\\ Leadership Insights The major drawback to salary plus commission plans is that they are more expensive and more costly to administer. Travel and entertainment costs are a relatively insignificant portion of a salesperson's compensation package. is considered a serious offense, which, if detected, often leads to termination of employment. Whos using straight hourly compensation? The tools and resources you need to get your new business idea off the ground. 5 Park N Fly presently has net income of $3.5 million and 1 million shares of common stock outstanding. The commission can include (but is not limited to) a percentage of personal sales, a percentage of team sales, bonuses, or overtime pay. Is your team struggling with burnout and a lack of fulfillment at work? \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}}\\ 3. Salaried employees receive an equal portion of their annual compensation every week. Prepare an analysis to determine which plan will result in the highest earnings per share of common stock. What is important here is building a close relationship with the retailer and satisfying the customers needs. This form of nonfinancial reward is generally considered to be more desirable to younger salespeople In this compensation structure, the employee receives a set hourly rate, plus a percentage of their sales. Is good for a financially weak company. Katey Maddux is a paddle boarder, music lover, Zumba instructor, and Founder and CEO of. Which of the following is not true regarding the design of a global salesforce compensation system? The primary benefit of salary-plus-commission plans is they allow the compensation program to be tailored to the needs of a particular firm. What is salary pay? 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. Expert Answer. Sparks holds a Bachelor of Arts in business. A major objective of a well-designed compensation package is to: 1. It could reduce retention and increase turnover. Your salespeople are paid on commission. Which, if any, of the following sources available will help you in your task? Copyright 2023 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. Good salespeople can continue to receive residual commission ever after they leave the company through negotiation. Katey Maddux is a paddle boarder, music lover, Zumba instructor, and Founder and CEO ofMillennial Accounting, LLC in Miami, Florida. A large direct sales company such as Avon would most likely compensate their salespeople in this View the full answer. Many millennials, however, are more focused on work-life balance and lifestyle plans, valuing more vacation or the freedom to work from home. It is a very useful system of remunerating newly-appointed salesmen who are new to the job. It provides stability of earnings without wide fluctuations. \begin{array} {rcrcrcrcr} 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. \end{matrix} For more information on your states minimum wage requirements, read up on minimum wage requirements or visit the Department of Labors website. Assume that the points scored by the winning teams for all NCAA games follow a Hourly roles can often be perceived as less valuable or easier to replace. Payroll essentials you need to run your business. The tools and resources you need to run your business successfully. The earnings of a person who is working as an independent contractor are subject to self-employment tax.. Part A: Compare the advantages and disadvantages of straight salary and straight commission compensation plans. Straight salary method of remuneration is simple. This compensation category also includes restaurant employees paid mostly in tips. Many appreciate the fallback stability of the base salary paired with performance incentives. What was the difference between the day's high and low for one share of Southern Copper? It is often used in direct sales industries and multi-level marketing (MLM) firms that work with independent contractors. Chris Joseph writes for websites and online publications, covering business and technology. With some compensation plans, they can earn additional incentive pay in the form of commissions or bonuses that a company offers in an attempt to motivate them. 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." \text{Bal. 3. &&&& -2,000\\ Spread the word: What you need to know about marketing your small business. In designing plans one must balance the goals of the firm, as well as the needs of the sales force and customers. 4. Employees may be confused as to how pay is calculated, so transparency is important. Hence, this concludes the definition of Straight Salary Plan along with its overview. Employees who are self-motivated and hardworking are attracted to this type of work because theres typically no upper limit to the amount in tips or commission they can take home. 9. Grant cites a Stanford and Kellogg study that found when a group of people only shared their email and names during negotiations, they struck up agreements 40 percent of the time. Business is going well for Park N Fly , the company that operates remote parking lots near major airports. Security and collaboration: The straight salary plan provides a more stress-free working environment for the salespersons. Part B: As a retail sales manager of a large superstore, one of your responsibilities is to train the newly hired employees. Advantages. 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. Because her income is stable, planning and managing her personal finances is easier. 12. 2. PMR is common in sales and is good for startups with low liquidity. But straight commission method distinguishes between efficient and inefficient salesmen. 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. 6. But straight commission method provides sufficient incentive to the salesmen to do hard work. salesperson's total pay that is salary should be relatively high? Different companies offer different compensation plans to their sales representatives- the straight salary plan being one of the simplest. 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. Get the definitive guide to employee compensation packages and benefits in this comprehensive QuickBooks resource written by payroll expert Katey Maddux. Let's explain the benefits with a clear example of an unpackaged salary versus an FBT exempt salary package. The directors are considering three financing plans. 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).

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