Module 9: Sales Compensation Flashcards
401(k) plans
A qualified retirement plan that allows eligible employees of a company to save and invest for their own retirement on a tax-deferred basis
salary
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
commission
A form of variable pay that is contingent on discretion, performance, or results achieved
draw against commission method
A method of paying commission by which the employee receives a payout at regular intervals
Recoverable draws
A payout the company expects to get back
nonrecoverable draws
A payout that the company does not necessarily expect to get back
total compensation package
The full value of an employer’s compensation and benefit package to its employees
sales accelerators
A payout that is exponential when a salesperson reaches a specific amount over his or her quota
Advantages and disadvantages of compensation methods
performance appraisal system
A regular review of an employee’s job performance and overall contribution to a company
performance appraisal system
A regular review of an employee’s job performance and overall contribution to a company
There are five key aspects of reward systems in organizations:
- Functions served by reward systems
- Basis for reward distribution
- Intrinsic versus extrinsic rewards
- The relationship between money and motivation
- Pay secrecy
It is generally agreed that reward systems influence the following:
Job effort and performance, Attendance and retention, Employee commitment to the organization, Job satisfaction, Occupational and organizational choice
Key aspects of a reward system
Basis for reward distribution
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?
distributive justice
Employees receive (at least a portion of) their rewards as a function of their level of contribution to the organization
Extrinsic rewards
Rewards that are external to the work itself. They are administered externally—that is, by someone else (usually management)
Intrinsic rewards
Rewards that are related directly to performing the job. They are often described as “self-administered” rewards
Pay secrecy
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.
The following are desirable traits of incentive plans:
Clearly communicated
Attainable but challenging
Easily understandable
Tied to company goals
profit- or gain-sharing
Employees receive bonuses tied directly to the company’s overall profitability
Incentive pay directly links company and employee objectives
Stock options
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
Merit pay
A compensation program that links compensation to how well the employee performs within the job, and it is normally tied to performance appraisals
cost of living annual increases (COLAs)
A type of pay increase given to employees as an annual inflationary increase
Sales performance incentive fund (SPIF)
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.
fringe benefits
Various indirect benefits, often of a more discretionary nature than standard benefits
piece-rate incentive program
The employee is paid for each unit of production at a fixed rate
