Straight commission is a “pay for performance plan” where monetary compensation is strictly tied to the results achieved by the salesperson. It is best used when maximum time is provided for the salespeople to sell while non-selling tasks are minimized. Ordinarily, commissions are in direct correlation and proportionate to the value or volume of completed sales transactions made by the salesperson. Since financial compensation plans are offered as motivational incentives to inspire and energize the sales force to achieve greater results, it is assumed that the higher commissions earned from performance will also produce higher profits for the company (Hoffman, 2007). Because straight commissions are directly paralleled with performance outcome, it is believed that salespeople are motivated to attain a higher level of selling effort (Johnston & Marshall, 2009).
The advantage of paying employees on a straight commission basis is that they provide maximum incentives for the salesperson. Straight commissions tend to reward high achievers while discouraging poor performance from salespeople with low productivity. For the company, higher commissions can be used to direct the sales team toward certain products that may produce a higher profit. In addition, it limits the amount of working capital because the business does not pay high wages for their salespeople unless they generate high sales revenues (Johnston & Marshall, 2009).
The disadvantage of paying employees on a straight commission basis is that salespeople have very little financial security because their income is unstable and difficult to predetermine. In difficult economic times, employee turnover is greater because salespeople cannot earn a living on a low income from poor sales. When compensation
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