For one to understand compensation and how it works, one needs to have diverse knowledge of management salary structure. To know how exempt employee are rewarded will go a long way to help one understand compensation. Various guest speakers who came from different firms operating in Pittsburgh gave a description of how they compensated their employees based on their compensation structure. They also revealed how their compensation managed to retain their best performing employees. Compensation can be termed as a reward paid to an employee for doing a job. Wages, salaries and commissions are the most common forms of compensation. The speaker described various forms of compensation to employees as described below:
Fastenal- salary and commission-commission v.Salary
This form of compensation involves an employee receiving a base salary as well as a bonus whenever their performance superceeds the earning goal. The speaker said that the employee will always receive a base salary even in periods when their sales are low. Therefore, the employee is able to pay their bills and avoid looking for another job. Employees under this category tend to have higher income tax rates when compared to self-employed agents. The plan has two benefits, first it gives employees some financial security in form of guaranteed base salary and secondly, it offers motivation to employees to sell more so that they earn the bonus.
Aflac (commission only with no taxes)
This compensation structure is used to pay independent sales agents. According to the speaker, it is used mainly by employees who are interested in exploring a given territory. The safety net offered to the employees is described as , draw against commission. At the onset of a pay period, employees are paid a certain amount called , pre-determined draw. The prepayment is finally drawn against the employee’s earnings at the end of pay period. Under this compensation, the more one sells the higher the returns. Thus one’s earnings are directly related to their hard work. Many entry level agents tend to have less commission percentage but it improves with time as they gain more experience. The employees are paid in full since their pay are not eligible for tax deductions.
Mass Mutual (straight salary compensation)Commission v.Salary
This refers to the basic wages and salaries paid to a worker. The speaker said that in his company the base pay corresponds to job title and the worker’s job role. The company has a minimum and a maximum salary which depends on the performance of the employee. Therefore, it can either increase, decrease or remain constant. The workers are paid on a straight salary compensation and as such, they do not earn commission or incentives. The benefit of this is that it promotes equality among employees working as a team. Similarly, each employee’s contribution is expected to be the same. The company also offers stock options to employees. This plan is suitable for employees who have established themselves in the company.
Northwestern (Territory volume compensation plans)
To calculate the compensation paid to employees, the company has to identify territory volume. The profit generated by the company is then calculated and divided equally among all the employees. This is best suitable for employees working in a team. The company has a team-based culture and advise employees to work as a team and promote team work within the company. The companies using this system of compensation make teamwork a priority over individual employee performance. This employees are under minimum pressure to perform at individual level. Territory management ensure there is a balance of sales responsibilities with the organization. Employees are encouraged to give their best and to target the right customers to optimize sales and subsequently get a higher salary.
David (Profit margin/revenue compensation plans)Commission v.Salary
This compensation plan is suitable for a company that is on a start-up period. The employees are rewarded based on the profits generated by the company. The company also brings in other strategies such as stock options in order to nurture employee loyalty. During low season when the company is not performing well, employees are compensated on ‘draw against commissions’ terms. The company recoups the draw amount from future earnings. When an employee makes a lucrative deal with a client, he or she is give a share of the profits. This is a source of motivation for employees to sell more and at a higher price. The flip side of this is a possibility of an employee losing part of his money once they reduce the price.
Question 2: Straight salary
The main objective of employees to work is to get a salary. This compensation structure is suitable for companies which prohibit direct sales. The compensation strategy also makes all employees equal thus most suitable for firms that encourage team-work. However, this type of compensation can hinder the growth of an organization due to lack of competition among employees. Therefore, as presented by the speaker, straight salary might discourage top-performing employees whose objective is to make as much money as possible by shear hard work and commitment. It is quite attractive for employees with minimal experience and are looking for financial safety.
Salary plus commission-commission v.Salary
The employer who presented about this type of compensation stated that the company combines lower base salary with commission. The commission is based on an employee’s performance. The total compensation combines the employees lower salary and the total commission earned. This compensation structure offers a balance of income to employees. The employees enjoy base salary and commission which can help them earn more according to their output. The company also offers the employees with other benefits such ad affordable healthcare and pay increase based in merit. Other compensation packages that accompany this includes life and accident insurance and bonuses for other works completed.
Commission only with no taxes
This type of compensation structure rewards employees only on profit raised or sales made. It has no tax deductions. There is no guarantee of minimum income and one can earn as much as they want provided they put in the hard work. The plan creates a competitive environment and employees compete with each other. The company is thus, able to make more money as a result of increase in sales. It has an advantage in that it allows employees to create their own schedule. Employees can work when they feel it best suits them or when they know they have a better chance of making sales. The income of the employees will oscillate based on the profits made. The company employers do not offer stock options to attract and retain employees.
Question 3:Commission v.Salary
All compensation packages tend to have a good and consistent salary. The salary rises as cost of living goes up, better performance by the employee and also according to the time an employee has spend with the company. Additionally, the company also pays employee bonuses and incentives as components of a desirable compensation package. Another benefit of this company is that employees are offered vacations and time-offs. Moreover, to make the compensation package more flexible the company has separate sick-leave and vacation leave for all the workers. The challenge of working with commission compensation structure is that the worker get paid only when he or she makes a sale. Hence salaried pay is better and more reliable for employees since it gives the employee financial security and it is dependable. Employees can be able to create a budget based on salary and stick to it without fear that a certain period they might not have money.
Even though straight commission pays one based on sales, i believe it is the best since the more one sales the higher the income. It has a high risk but also returns are high. The speaker highlighted that this system favours only the self-disciplined , motivated, positive, confident and eager to learn employees. Therefore, it is perfect for a sales person that always want to make more money. Commission only positions in many organizations are accompanied by package benefits offered to the employees. The skills and pure hard work dictates what employee will earn. The hardworking employee earn better income when compared to their salaried counterparts. They are always motivated since they know their efforts do not go to waste.
Another financial advantage of commissions is based on the fact that employees only when they have sale conversions. The employee will never incur the costs of commission unless they make a successful sale. The speaker explained that salespersons with high compensation receive double the amount salary-based employees get working in the same profession. The employees rarely desire a promotion to management since it means a pay cut. They also know they can determine their own success. The employees also have freedom of operating when compared with co-workers in clerical positions.