Module 9: Sales Compensation

Question 1

401(k) plans

Answer 1

A qualified retirement plan that allows eligible employees of a company to save and invest for their own retirement on a tax-deferred basis

Question 2

salary

Answer 2

A fixed regular payment, typically paid on a monthly or biweekly basis but often expressed as an annual sum, made by an employer to an employee

Question 3

commission

Answer 3

A form of variable pay that is contingent on discretion, performance, or results achieved

Question 4

draw against commission method

Answer 4

A method of paying commission by which the employee receives a payout at regular intervals

Question 5

Recoverable draws

Answer 5

A payout the company expects to get back

Question 6

nonrecoverable draws

Answer 6

A payout that the company does not necessarily expect to get back

Question 7

total compensation package

Answer 7

The full value of an employer’s compensation and benefit package to its employees

Question 8

sales accelerators

Answer 8

A payout that is exponential when a salesperson reaches a specific amount over his or her quota

Question 9

Advantages and disadvantages of compensation methods

Answer 9

Question 10

performance appraisal system

Answer 10

A regular review of an employee’s job performance and overall contribution to a company

Question 11

performance appraisal system

Answer 11

A regular review of an employee’s job performance and overall contribution to a company

Question 12

There are five key aspects of reward systems in organizations:

Answer 12

1. Functions served by reward systems
2. Basis for reward distribution
3. Intrinsic versus extrinsic rewards
4. The relationship between money and motivation
5. Pay secrecy

Question 13

It is generally agreed that reward systems influence the following:

Answer 13

Job effort and performance, Attendance and retention, Employee commitment to the organization, Job satisfaction, Occupational and organizational choice

Question 14

Key aspects of a reward system

Answer 14

Question 15

Basis for reward distribution

Answer 15

A common reality in many contemporary work organizations is the inequity that exists in the distribution of available rewards. One often sees little correlation between those who perform well and those who receive the greatest rewards. At the extreme, it is hard to understand how a company could pay its president $10–20 million per year (as many large corporations do) while it pays its secretaries and clerks less than $15,000. Each works approximately 40 hours per week, and both are important for organizational performance. Is it really possible that the president is 1,000 times more important than the secretary, as the salary differential suggests?

Question 16

distributive justice

Answer 16

Employees receive (at least a portion of) their rewards as a function of their level of contribution to the organization

Question 17

Extrinsic rewards

Answer 17

Rewards that are external to the work itself. They are administered externally—that is, by someone else (usually management)

Question 18

Intrinsic rewards

Answer 18

Rewards that are related directly to performing the job. They are often described as “self-administered” rewards

Question 19

Pay secrecy

Answer 19

Secrecy about pay rates seems to be a widely accepted practice in work organizations, particularly among managerial personnel. It is argued that salary is a personal matter and should not invade another’s privacy. Available evidence, however, suggests that pay secrecy may have several negative side effects. To begin, it has been consistently found that in the absence of actual knowledge, people have a tendency to overestimate the pay of coworkers and those above them in the hierarchy.

Question 20

The following are desirable traits of incentive plans:

Answer 20

Clearly communicated
Attainable but challenging
Easily understandable
Tied to company goals

Question 21

profit- or gain-sharing

Answer 21

Employees receive bonuses tied directly to the company’s overall profitability

Question 22

Incentive pay directly links company and employee objectives

Answer 22

Question 23

Stock options

Answer 23

A benefit in the form of option given by a company to an employee to buy stock in the company at a discount or a stated fixed price

Question 24

Merit pay

Answer 24

A compensation program that links compensation to how well the employee performs within the job, and it is normally tied to performance appraisals

Question 25

cost of living annual increases (COLAs)

Answer 25

A type of pay increase given to employees as an annual inflationary increase

Question 26

Sales performance incentive fund (SPIF)

Answer 26

A financial incentive that encourages sales for a specific item or group of items. Incentives can be cash bonuses or non-monetary benefits such as a vacation or a car.

Question 27

fringe benefits

Answer 27

Various indirect benefits, often of a more discretionary nature than standard benefits

Question 28

piece-rate incentive program

Answer 28

The employee is paid for each unit of production at a fixed rate