Deck 12: Sales Force Compensation

Question 1

With regard to sales compensation plans, which of the following is non-incentive based?

A) straight commission
B) hourly wage
C) performance bonus
D) profit sharing

Answer 1

hourly wage

Question 2

Which of the following is a non-incentive-based sales compensation plan?

A) stock options
B) flexible pay compensation
C) straight salary
D) pay-for-knowledge

Answer 2

straight salary

Question 3

With respect to sales compensation plans, which of the following is benefits-based?

A) stock options
B) pay-for-knowledge
C) merit pay
D) health insurance

Answer 3

health insurance

Question 4

With respect to compensation plans, which of the following is not a category of salespeople listed below?

A) creatures of habit
B) goal-oriented
C) satisfiers
D) fringe benefit-oriented

Question 5

In examining the effect of various compensations plans on company profits, a seminal study identified several types of salespeople. __________ try to maintain their standard of living by earning a predetermined amount of money.

A) creatures of habit
B) goal-oriented individuals
C) satisfiers
D) none of the above

Question 6

In examining the effect of various compensations plans on company profits, a seminal study identified several types of salespeople. __________ prefer recognition as achievers by peers and by superiors and tend to be sales-quota-oriented, with money serving mainly as a by-product of achievement.

A) creatures of habit
B) goal-oriented individuals
C) satisfiers
D) none of the above

Question 7

In examining the effect of various compensations plans on company profits, a seminal study identified several types of salespeople. __________ allocate their time according to a personally determined ratio of work and leisure that is not influenced by opportunities for increased earnings.

A) trade-offers
B) money-oriented individuals
C) satisfiers
D) none of the above

Question 8

In examining the effect of various compensations plans on company profits, a seminal study identified several types of salespeople. __________ seek to maximize their earnings and may sacrifice family relationships, personal pleasures, and even health to increase their income.

A) trade-offers
B) money-oriented individuals
C) satisfiers
D) none of the above

Question 9

In examining the effect of various compensations plans on company profits, a seminal study identified several types of salespeople. __________

A) trade-offers
B) money-oriented individuals
C) satisfiers
D) none of the above

Question 10

With regard to compensation systems which one of the following statements is incorrect?

A) reward preferences and reward levels, and managers', subordinates', and superiors' perceptions of the adequacy of their rewards are known to differ
B) there is reward equality at successive hierarchical levels
C) compensation and perks tend to increase at the higher levels of a corporation, creating status and power differences
D) the importance employees assign to rewards differs according to their changing needs, career stage, and organizational level

Question 11

Which of the following is not a reason that has contributed to why many firms have already adopted flexible, cafeteria-type compensation plans, which have become an increasingly popular alternative to standardized reward systems?

A) the U.S. work force now includes large numbers of dual-career households whose employers tend to provide similar, overlapping reward or benefit programs in which only one spouse can participate
B) many older employees have needs for rewards and benefits that may not be consistent with their chronological age
C) the U.S. work force has now become a melting pot
D) many employees have needs for rewards and benefits that may not be consistent with their organizational level

Question 12

The first step in developing the compensation plan for a sales force is to

A) pretest the plan
B) establish specific objectives
C) prepare job descriptions
D) determine general levels of compensation

Question 13

The third step in developing the compensation plan for a sales force is to

A) pretest the plan
B) establish specific objectives
C) prepare job descriptions
D) determine general levels of compensation

Question 14

The fifth step in developing the compensation plan for a sales force is to

A) pretest the plan
B) establish specific objectives
C) prepare job descriptions
D) determine general levels of compensation

Question 15

The seventh step in developing the compensation plan for a sales force is to

A) pretest the plan
B) establish specific objectives
C) develop the compensation mix
D) administer the plan

Question 16

The eighth step in developing the compensation plan for a sales force is to

A) establish specific objectives
B) evaluate the plan
C) prepare job descriptions
D) determine general levels of compensation

Question 17

Compensation plans are designed to achieve certain organizational objectives, which include:

A) larger market share
B) higher profit margins
C) introducing new products
D) all the above

Question 18

Compensation plans are designed to achieve certain organizational objectives, which include:

A) winning new accounts
B) reducing selling costs
C) introducing new services
D) all the above

Question 19

Any compensation plan may have several objectives, depending upon the needs of the specific company, sales manager, or salesperson. From the company's vantage point, the plan should stress the following except:

A) control
B) economy
C) simplicity
D) all the above

Question 20

Any compensation plan may have several objectives, depending upon the needs of the specific company, sales manager, or salesperson. From the company's vantage point, an ____________ plan is one that offers a desirable balance between sales costs and sales results:

A) control
B) economy
C) simplicity
D) motivation

Question 21

Any compensation plan may have several objectives, depending upon the needs of the specific company, sales manager, or salesperson. From the sales representatives' vantage point, the plan should offer the following except:

A) income regularity
B) fairness
C) distributive justice
D) reward for superior performance

Question 22

Angela Claridge is a sales representative who is most interested in making sure that her income covers her home mortgage, food, and utilities each month. Ms. Claridge probably feels that the most important criterion for a compensation plan is to ensure:

A) fairness
B) reward for superior performance
C) income regularity
D) simplicity

Question 23

The factors that determine the basic level of pay for a sales force include all except the following:

A) the skills, experience, and education required to do the work successfully
B) the level of income for comparable jobs in the company
C) the level of income for comparable jobs in the industry
D) all the above

Question 24

Sales managers must decide what proportion of each salesperson's total income should be earned through incentives and whether the incentive pay schedule should be:

A) fixed
B) regressive
C) progressive
D) all the above

Question 25

____________ rates, which steps up the percentage of commission or bonus awarded as sales volume grows past designated levels, are best when profit margins climb significantly after the break-even point is reached.

A) fixed
B) regressive
C) progressive
D) all the above

Question 26

Reductions in the percentage of commission or bonus awarded as sales volume increases are referred to as __________ incentives.

A) progressive
B) regressive
C) fixed
D) impossible to tell from the information provided

Question 27

Robert Finney is a sales representative for a large consumer products manufacturer. He is having a good sales year. At the end of the second quarter of the year, he had sold $1,000,000 worth of products for which he received $25,000 in commissions. By the end of the year, he had sold a total of $2,000,500 worth of products and had earned $45,007.50 in total commission for the year. Mr. Finney's commission rate is:

A) fixed
B) regressive
C) progressive
D) curvilinear

Question 28

Managers must ____________any compensation plan before adopting it, which helps identify its probable impact on profits, they need to compute the sales and potential earnings the new plan would have offered each salesperson over the past several years.

A) pretest the plan
B) establish specific objectives
C) develop the compensation mix
D) administer the plan

Question 29

There is considerable controversy regarding pay secrecy versus pay disclosure. Which of the following statements is correct regarding this issue?

A) Most sales managers feel that peer pay should be disclosed to the sales force members.
B) Salespeople seem to become initially more satisfied after implementation of open pay policies.
C) Sales organizations that are not capable of objectively measuring performance are likely to have problems with open pay systems.
D) Salespeople seem to become much more satisfied (or at least initially) with their superiors after implementation of open pay policies.

Question 30

Straight salary plans are best in all but which of the following situations?

A) team selling
B) long negotiating periods
C) during the first year for sales trainees
D) simple promotional mix, i.e., where the company relies almost exclusively on personal selling instead of advertising to market its products

Question 31

Which of the following compensation plans is most frequently used by the aerospace petroleum, and chemical industries, where service and engineering skills are particularly important to customers?

A) salary plus incentive
B) straight salary
C) straight commission
D) combination

Question 32

As a method of compensation, straight salary has all of the following advantages except:

A) gives a higher degree of company control over salespeople's activities
B) permits rapid adaptation of sales force efforts to changing market demands and company objectives
C) is difficult to administer
D) helps develop a sense of loyalty to the company

Question 33

As a method of compensation, straight salary has all of the following disadvantages except:

A) it provides no financial incentive to put forth extra effort
B) it may increase selling costs because salaries remain the same even when sales are not being made
C) it tends to lead to income inequalities
D) it significantly reduces the sales managers control over sales activities

Question 34

Straight commission plans are

A) easily calculated
B) those with a "ceiling" on earnings
C) ones where income is based on subjective evaluations by sales managers
D) suited for team selling to make a sale

Question 35

Which of the statements below is incorrect regarding commission rates?

A) progressive rates, which increase the percent of commission awarded as sales volume increases, are best when profit margins climb sharply after the break-even point is reached
B) regressive commission rates are usually utilized when there is a high probability of windfall sales or propensity to overload customer inventories
C) fixed commission rates are the easiest to calculate
D) none of the above are incorrect

Question 36

The advantages of a straight commission plan include all of the following, except:

A) costs are proportional to sales
B) ease of calculation-salespeople can keep track of earnings
C) more emphasis on nonselling tasks (service, etc.)
D) salespeople have maximum work freedom

Question 37

The advantages of a straight commission plan include all of the following, except:

A) poorly performing salespeople eliminate themselves by quitting
B) income is based strictly on accomplishments, not on subjective evaluations by sales managers
C) salespeople have minimum work freedom
D) costs are proportional to sales

Question 38

The disadvantages of a straight commission plan include all of the following, except:

A) excessive emphasis may be placed on sales volume rather than profitable sales
B) salespeople have high loyalty to the company
C) because of extreme fluctuations in earnings, many salespeople may face uncertainty about meeting daily living expenses for their families
D) non-selling activities like service, missionary sales, and displays are often neglected

Question 39

The disadvantages of a straight commission plan include all of the following, except:

A) there may be little sales force turnover rates when there is a recession
B) salespeople may overload customers with inventory, thereby straining long-term customer relationships
C) windfall earnings may come about under good business conditions, which may be disturbing to sales management
D) flexibility to split territories or transfer salespeople is diminished because of limited means of control over the sales force

Question 40

Dorothy Brenner is a sales rep whose commission plan includes a weekly draw of $400 plus a commission rate of 10 percent on dollar sales volume. What is Ms. Brenner's current year's account balance if, by the end of the second week in February, her sales record looks like this: Week 1 = $2,000, Week 2 = $3,000, Week 3 = $3,500, Week 4 = $4,000, Week 5 = $6,000, and Week 6 = $7,000?

A) +$350
B) +$200
C) +$150
D) +$100

Question 41

Combination compensation plans combine two or three of the basic compensation methods, e.g., salary plus commission plus bonus. For which one of the following situations would a combination compensation be inappropriate?

A) when a sales manager wants to motivate high sales without sacrificing customer service
B) when long run sales objectives are being sought such as selling product systems or large installations
C) when sales are highly seasonal
D) none of the above would be inappropriate for combination compensation plans

Question 42

Which of the following are examples of combination compensation plans?

A) salary plus commissions
B) commission plus bonus
C) salary plus commission plus bonus
D) all the above

Question 43

Combination compensation plans are the most flexible of all approaches and fit a variety of conditions. ____________ are best when management wants to get high sales without sacrificing customer service. It is good for new salespeople, since it provides more security than straight commission.

A) salary plus commissions
B) salary plus bonus
C) salary plus commission plus bonus
D) commission plus bonus

Question 44

Combination compensation plans are the most flexible of all approaches and fit a variety of conditions. ____________ is appropriate for seasonal sales, when there are frequent inventory imbalances and when management wants to focus on certain products or customers.

A) salary plus commissions
B) salary plus bonus
C) salary plus commission plus bonus
D) commission plus bonus

Question 45

Combination compensation plans are the most flexible of all approaches and fit a variety of conditions. ____________ is usually applied to group efforts, in which some salespeople call on central buyers or buying committees while others call on store managers.

A) salary plus commissions
B) salary plus bonus
C) salary plus commission plus bonus
D) commission plus bonus

Question 46

The main advantages of a combination compensation plan include the following except:

A) provides the greatest flexibility and control over salespeople, in that all desirable activities can be rewarded
B) provides security plus incentive
C) allows frequent, immediate reinforcement of desired sales behavior
D) all the above are advantages

Question 47

The main disadvantages of a combination compensation plan include the following except:

A) may fail to achieve management objectives if not carefully conceived
B) can be expensive to administer, particularly if not computerized
C) can be complex and easily misunderstood
D) all the above are disadvantages

Question 48

Recent trends in sales compensation include all of the following except

A) tying sales compensation to productivity as well as retention
B) including customer satisfaction in the sales compensation plan
C) increased emphasis on international sales compensation
D) all of the above are recent trends

Question 49

With regard to recent financial compensation trends which of the following statements is incorrect?

A) managers are recognizing that high levels of customer satisfaction and retention are critical to profitability
B) many firms have incorporated customer satisfaction-based incentives into their sales compensation plans
C) key account salespeople or customer sales teams who call on the largest and most profitable customers are often the highest-paid salespeople in their companies.
D) all of the above are recent trends

Question 50

As U.S. firms continue to expand into international markets, they are being confronted with a range of circumstances that require them to adjust their sales compensation plans for indigenous salespeople. Which of the following statements is incorrect with respect to compensation in the Far East?

A) sales volume is the primary indicator of success
B) compensation is tied almost exclusively to sales volume
C) less weight should be placed on non-selling activities when developing a compensation plan
D) all of the above are recent trends

Question 51

Which of the following are not the building blocks of any well-designed expense plan?

A) inflexibility
B) equitability
C) legitimacy
D) simplicity

Question 52

Alan Farber is a top notch sales representative for a industrial products company in the midwest. He is reimbursed for expenses up to 4 percent of his net sales, and receives a bonus for keeping selling expenses below 4 percent of net sales. Which of the following basic reimbursement plans is Mr. Farber's company using?

A) unlimited reimbursement plan
B) limited reimbursement plan
C) combination reimbursement plan
D) negative reimbursement plan

Question 53

Phyllis Gibfried is a sales rep for a cosmetic manufacturer who is allowed $50 per day for lodging, $20 for meals, and 20 cents per mile for travel. What reimbursement plan is Ms. Gibfried's company using?

A) unlimited reimbursement plan
B) limited reimbursement plan
C) combination reimbursement plan
D) partial reimbursement plan

Question 54

Which of the following is not a disadvantage of limited reimbursement plans?

A) salespeople may feel the sales manager lacks trust in their making selling expenditures
B) it restricts exceptional expenses which might gain or save a customer
C) it tempts salespeople to switch reporting of expenditures from one time period to another to avoid going over the expense limits
D) it makes salespeople less expense conscious to the possible detriment of sales and profits

Question 55

Concerning methods for controlling expenses, which of the following statements is inaccurate?

A) the most popular method of expense control is unlimited reimbursement
B) unlimited payment plans tend to make forecasts of selling costs easier
C) limited reimbursement plans tend to reduce expense account padding
D) with combination reimbursement plans, the sales rep's attention may shift from obtaining profitable sales to worrying about expense ratios

Question 56

An effective reward program and compensation structure is perhaps the most powerful mechanism to motivate average performers to achieve their full potential.

Question 57

Compensation structures and programs refer to intrinsic rewards that can stimulate higher levels of effort (motivation), thus contributing to superior salesperson performance.

Question 58

Constituting a central part of extrinsic rewards, compensation plans and financial packages are the most important, least ambiguous way to remunerate employees.

Question 59

A straight salary is a fixed sum of money paid at regular intervals.

Question 60

A straight salary is inappropriate for team selling, long negotiating periods, mixed promotional mixes, sales trainees, missionary selling, and in special situations such as introducing new products or developing new customer accounts.

Question 61

Payment based on the principle that earnings should vary with performance refer to straight commission.

Question 62

Straight commission are historically based on dollar or unit sales volume, but can be tied to measures of profitability.

Question 63

A plan that combines two or three of the basic compensation methods (e.g., salary plus commission) is known as a combination compensation plan.

Question 64

A reference description refers to the written description of the responsibilities and performance criteria for a particular position.

Question 65

The fringe mix refers to the relationship between salary, commission, and other incentives.

Question 66

Progressive incentives are best when profit margins climb significantly before the break-even point is reached.

Question 67

Decreases the percentage of commission or bonus awarded as sales volume increases are referred to as regressive incentives.

Question 68

Regressive incentives are should not be used where there is a high probability of "windfall" sales and a propensity to overload customer inventories.

Question 69

Payments made at the discretion of management for specific achievements are known as a bonus.

Question 70

Fringe benefits are financial accounts that enable sales representatives to carry out necessary selling activities.

Question 71

A draw is sum of money paid against future commissions.

Question 72

A "guaranteed draw" has to be repaid in the event of insufficient sales commissions.

Question 73

Compensation plans are designed to achieve certain organizational objectives, for example, larger market share, higher profit margins, introducing new products or services, winning new accounts, or reducing selling costs.

Question 74

During the first year when salespeople learn their job, a salary is usually required to attract new recruits into selling and to compensate the trainee, at least until commissions are large enough to provide an adequate living standard.

Question 75

Long negotiation periods of a year or more may be needed to make a complex sale of a system of products and services or big-ticket items, such as private jets.

Question 76

Missionary selling jobs are primarily selling jobs aimed at developing goodwill among customers (such as physicians, pharmacies, hospitals, museums, or government agencies that serve as product deciders or recommenders for their own patients, clients, or customers) by providing them with information, advice, service, and assistance in prescribing, recommending, or merchandising (setting up educational displays or advertisements) products.

Question 77

Companies without large working capital often use commissions as a method of keeping selling costs directly related to sales.

Question 78

The disadvantages of a straight commission plan include no ceiling on potential earnings and income is indirectly related to productivity.

Question 79

The advantages of a straight commission plan include salespeople have little loyalty to the company and there may be little sales force turnover rates when there is a recession.

Question 80

The salary plus commissions combination is best when management wants to get high sales without sacrificing customer service. It is good for new salespeople, since it provides more security than straight commission.