Compensation has been a hot topic within the business world for years and has become increasingly important in employee motivation, retention and overall satisfaction. One of the many compensation structures that employers use is a blend of salary plus commission, often known as ‘salary plus commission’ plans. These plans can provide benefits for both employers and employees, but also come with drawbacks. In this blog post, we will explore the advantages and disadvantages of a salary plus commission plan from both an employee and employer perspective. We will also provide suggestions for how to make these plans successful, and how to overcome any potential difficulties. By the end of this post, readers will have a better understanding of the benefits and pitfalls of salary plus commission plans.
The Disadvantages of a Salary Plus Commission : Financial Planning & You
Pro: Rewards Performance
Companies typically use straight commission or a plus commission pay plan to reward top performers and encourage employees to produce better results. If salespeople receive a flat salary, some may lack the motivation to go above and beyond the minimum requirements. However, businesses encourage salespeople to set more ambitious goals, overcome challenges and rejection, and keep prospecting and looking for new selling opportunities by introducing commission-earning opportunities.
Pro: Only Pay When You’re Making Money
The ability to pay expenses only when you are making money is a huge advantage, especially for small businesses. In the event that you pay your salespeople a fixed salary, that payment constitutes a fixed overhead. Even if you are not making any sales, you must still pay it. When you structure the payment as a commission, the cost is deducted from your top-line earnings. No sale, no payment. Its that simple.
Pro (or Con): Stability
While a straight salary provides the most consistent income for workers, salespeople who have worked on straight commission frequently value a higher level of guaranteed income and base pay. Benefits from both straight salary and straight commission provide a nice balance of stability and motivation to perform at a higher level. The key is to provide just enough stability so that workers feel secure in their basic needs while still being motivated to sell more and earn more.
Advantage: Pay Tied to Revenue
The fact that you only pay commissions on successful sales conversions is a benefit in terms of money. Therefore, unless you also receive the revenue associated with the sales, you typically do not incur the commission costs. This is the reason why many businesses that rely heavily on sales pay employees on commission. By only paying employees for the results they produce, managers can efficiently control labor costs or ensure maximum selling efficiency.
FAQ
What are the advantages and disadvantages of commission?
- – Your schedule is your own. …
- – You control your income. …
- – You might have unlimited earnings potential. …
- – You know exactly how well you’re doing. …
- – You’ll probably work more independently. …
- – Your income can fluctuate greatly. …
- – You might be seen as high-risk.
What is a salary plus commission?
When sales organizations choose to pay salespeople a combination of salary plus commission, it means that salespeople earn a consistent, yearly, predetermined salary but can supplement that by earning a commission on their sales.
What is an advantage of being paid by commission?
Commission Pay: The Pros and Cons According to the Corporate Finance Institute, one of the major benefits of commission pay is how it affects payroll. If your commissioned employees aren’t generating revenue for the business, you can save on payroll expenses because their pay reflects their contributions to the company.
Is base salary plus commission good?
Base Salary Plus Commission Since the base salary is typically insufficient to support a very comfortable lifestyle, sales representatives are encouraged to put in extra effort to reach their commission goals. A base salary plus commission strikes a healthy balance between financial incentive and security.
