Deck 12: Compensating Salespeople

Question 1

More firms use straight commission plans than any other type of compensation plan.

Answer 1

False

Question 2

Sales force compensation should not only meet the goals of the firm, but should also provide communicate what is important to the sales force.

Answer 2

True

Question 3

The most common combination plan is the salary-plus-commission-plus-bonus plan.

Answer 3

False

Question 4

The goal of the compensation package is to reward employees for their efforts without putting the firm's profitability in jeopardy.

Question 5

Salesperson compensation has been an issued marked by trial and error to discover the right formula.

Question 6

Salary programs are most appropriate when it is difficult to relate the efforts of individual salespeople to the size or timing of a sale.

Question 7

Although many customers expect after-sale service on repair parts and delivery, compensation programs based on straight salary are not likely to encourage these important follow-up activities.

Question 8

As a sales manager you must design a compensation plan that meets the firm's goals as well as the needs of both the firm's customers as well as your sales force. This may be difficult, as some plans encourage salespeople to sell more inventory than is needed - resulting in unhappy customers.

Question 9

According to the Customer-Product Matrix, sales positions that focus primarily on new business development require a greater proportion of salary than incentive.

Question 10

It is usually easy to design pay plans that fully meet the goals and needs of the firm, customers, and salespeople.

Question 11

Under a straight commission plan, sales managers usually have less control over their reps.

Question 12

Compensation plans should be designed to encourage salespeople to work efficiently.

Question 13

Straight salary plans often do not provide strong incentive for extra effort.

Question 14

The ideal compensation plan motivates salespeople to achieve their own and the company's objectives.

Question 15

Salary compensation plans tend to overpay the least productive salespeople.

Question 16

Selling situations that require salespeople to perform special services for customers are more likely to be performed when salespeople are on salary.

Question 17

When the economy and sales are expanding, some firms shift from salary to commission plans to cut expenses and lower fixed costs.

Question 18

In designing plans one must balance the goals of the firm, as well as the needs of the sales force and customers.

Question 19

With regard to compensation programs, most firms just use a draw against commission.

Question 20

A valid objective in creating commission-based pay programs is to devise a system that encourages salespeople to sell items that maximize profits of the firm

Question 21

It is not clear that offering unlimited opportunities to earn higher pay will always be an effective method for continued salesperson motivation.

Question 22

According to compensation surveys, ales managers typically earn less than the top reps in their district when sales reps are on an incentive-based plan.

Question 23

Compensation plans, once set, do not need to be evaluated to determine if it will negatively affect salespeople's wages and total costs.

Question 24

Benefit packages amount to a negligible portion of the cost of keeping a salesperson in the field.

Question 25

Typical benefits include hospitalization, insurance, and pension plans.

Question 26

A major objective of a well-designed compensation package is to:

A) provide equal pay to all employees at the same level.
B) Increase sales and revenues.
C) provide extensive benefits.
D) encourage a "hard sell" attitude among the sales force.
E) micromanage salesperson behaviors.

Question 27

A per diem expense plan pays the salesperson for all reported expenses.

Question 28

Travel and entertainment costs are a relatively insignificant portion of a salesperson's compensation package.

Question 29

Sales managers don't need to estimate how much a compensation plan will cost once it is introduced.

Question 30

Companies wanting to exert some behavioral control using incentives should make sure that the incentive component is between 15 and 30 percent of total compensation.

Question 31

In an unlimited expense account plan, a salesperson can make money for himself by cutting back on travel.

Question 32

A commission plus bonus plan is particularly suited to a company that uses brokers or independent sales reps.

Question 33

One of the advantages of the gross margin commission plan is the firm and salesperson share the same pool of money so both are interested in maximizing that amount.

Question 34

The primary benefit of salary-plus-commission plans is they allow the compensation program to be tailored to the needs of a particular firm.

Question 35

The size of the bonus payment is entirely arbitrary in many salary-plus-bonus plans.

Question 36

The net result of setting limits on sales expenses is that salespeople spend their valuable time juggling expenses from one category to another or from one time period to another to make sure they cover their costs.

Question 37

Real estate and life insurance firms typically use a sales force compensation package based on salary plus commission plus bonus.

Question 38

The major drawback to salary plus commission plans is that they are more expensive and more costly to administer.

Question 39

Wage caps are used by some firms to prevent salespeople from making too much money.

Question 40

To establish the "best" wage level for salespeople, managers have only two options: pay a premium to the marketplace, or pay less than the going rate.

Question 41

When establishing goals for the compensation plan, a sales manager must consider:

A) competitive compensation packages in the marketplace.
B) the needs of firm and customers.
C) motivation considerations of the sales force.
D) costs of the plan.
E) all of the above.

Question 42

As the Vice President of Sales for a new startup company, you decide to hire and train your own field sales force. You also decide to pay your salespeople with the most common type of compensation plan among companies. This pay plan is the:

A) salary plan.
B) incentive plan.
C) combination plan.
D) straight commission plan.
E) none of the above.

Question 43

Which of the following statements about straight commission compensation plan is true?

A) Straight commission compensation plans are inherently unfair.
B) Straight commission compensation plans are especially advantageous for companies that are short of working capital.
C) Top executives and other financial executives know that commission compensation plans are anxiety producing and often try to avoid from implementing such a plan.
D) Salespeople on a straight commission plan make more numbers of cold calls than salespeople on a straight salary plan.
E) Straight commission compensation is most appropriate for companies that require its sales force to engage in missionary selling.

Question 44

____________ is the easiest plan to administer and budget for.

A) Salary plus commission
B) Salary plus bonus
C) Straight commission
D) Straight salary
E) Salary plus commission plus bonus

Question 45

In your job analysis of the salesperson's activities, you discover that a significant level of activity of a successful salesperson includes taking orders for inventory replenishment, equipment installation and maintenance, and shelf-management programs. Based on this analysis you know that a larger percentage of the salesperson's pay should be _____________ as compared to ______________ for the best results.

A) incentive, salary
B) commission, bonus
C) salary, commission
D) commission, salary
E) none of the above

Question 46

Many small firms use plans to get started and then shift to plans when revenues grow.

A) combination, straight commission
B) salary, combination
C) salary, commission
D) commission, salary
E) none of the above

Question 47

A good starting point for developing a sales force compensation plan is to:

A) understand the company's strategic goals.
B) choose methods.
C) determine job specifications.
D) set pay levels.
E) assemble the plan.

Question 48

Commission programs tend to be more common:

A) when a minimum of after-sale service is needed.
B) when team selling is important.
C) when a strong incentive is needed.
D) when products are presold through advertising.
E) both a and c of the above.

Question 49

Salary plans are not popular with salespeople because:

A) salaries are predictable.
B) salaries are stable.
C) they run the risk of having little or no income.
D) they do not provide strong incentives for extra effort.
E) none of the above - salary plans are always popular with salespeople.

Question 50

Straight commission is a(an):

A) fixed cost.
B) variable cost.
C) semi-fixed cost.
D) intermediate cost.
E) material cost.

Question 51

The advantages of straight salary compensation include which of the following?

A) salaries are a fixed cost to the firm and thus tend to decrease proportionally as sales increase.
B) it allows maximum control over salespeople's activities.
C) it makes the division of territories an easier task.
D) tends to generate more loyalty from salespeople.
E) all of the above.

Question 52

Disadvantages of paying straight salary include all of the following except:

A) not providing strong incentives for extra effort.
B) they are fixed costs.
C) they are a relatively insecure form of payment, as compared to commission.
D) they overpay the least productive members of a sales team.
E) new trainees may earn almost as much as experienced salespeople with much less productivity.

Question 53

Despite some obvious advantages of straight commission, it has a number of drawbacks which include:

A) encourages salespeople to secure only the best accounts in their territories.
B) non-selling activities are apt to be neglected.
C) salespeople are tempted to sell themselves rather than the company.
D) both b and c of the above.
E) all of the above.

Question 54

According to the Customer-Product Matrix, sales positions which focus primarily on New Business Development require a greater proportion of __________ in the compensation plan than those sales jobs in the lower left-hand quadrant (Account Management). Sales jobs consisting primarily of Account Management involve a greater account servicing component and are therefore better suited to a primarily __________ form of compensation.

A) salary, commission
B) salary, bonus
C) commission, salary
D) commission, commission
E) none of the above

Question 55

As a sales consultant specializing in designing compensation plans, you advise your clients that the most influential factor is:

A) To develop as many goals as possible with the plan.
B) Drive multiple, specific salesperson behaviors.
C) Align your pay plan with company strategy
D) That the most expensive plan is typically the most motivating one.
E) Design a plan to minimize salesperson compensation.

Question 56

Building an effective sales force compensation plan boils down to:

A) Providing the highest level of wages possible.
B) Finding the right combination of salary and incentive pay.
C) Designing the plan around the seniority of the workers
D) All of the above
E) both a and b of the above

Question 57

You are the sales manager of a large, multi-product company. Your national sales force is divided into eight regions, though the Mid-Atlantic region is currently understaffed (sales volume there has always been low). Your salespeople are paid on commission. The economy has entered a period of recession, and even the Administration's economists predict that it will remain so for at least three more quarters. In order to "weather the storm," the best course of action among those presented below is to:

A) withdraw from the Mid-Atlantic region in order to reduce fixed costs.
B) shift from commission to salary in all regions in order to cut expenses.
C) raise commission rates on higher margin products in all regions in order to boost sales.
D) all of the above.
E) none of the above.

Question 58

Straight salary compensation is typically used in industries where:

A) Missionary selling is the most common type of sales process used.
B) Team selling is seldom, if ever, used.
C) Personal selling is more important to the overall marketing program than other push strategies such as advertising.
D) A great deal of selling skill is required to close sales.
E) Few, if any, trade promotions are used.

Question 59

Which of the following statements about a straight salary compensation plan is true:

A) Straight salary compensation plans are more complex to administer than straight commission compensation plans.
B) A major limitation of straight salary compensation plans is that financial rewards are not directly tied to any specific aspect of job performance.
C) Straight salary compensation is more commonly used with experienced salespeople than with newly hired sales recruits.
D) Straight salary compensation plans are most useful when sales managers want to motivate its sales force to achieve short-run sales volume increases.
E) It is inappropriate to use straight salary compensation for industries where missionary selling is commonplace.

Question 60

Advantages of commission includes all of the following except:

A) fostering independent action.
B) providing the maximum possible incentive.
C) often paying relatively high wages.
D) making selling costs proportional to the amount of goods sold.
E) making possible greater control by sales managers.

Question 61

__________ tends to help give the sales force the needed push to sell complex products or services and can be used to redirect salesperson efforts toward specific product lines; under this plan administrative costs tend to be high.

A) Straight commission.
B) Straight salary.
C) Salary plus commission.
D) Salary plus commission plus bonus.
E) None of the above.

Question 62

You have read a "want ad" in the latest edition of Marketing News. The firm is looking for a Vice President for sales and promotion. The company uses a combination of brokers and independent sales reps. What kind of a compensation program would they most likely to use for their salespeople?

A) straight salary
B) straight commission
C) salary plus bonus
D) commission plus bonus
E) salary plus commission plus bonus

Question 63

Changing from a straight salary plan to a combination salary plus commission plan provides a number of benefits. Which of the following is not an advantage of the salary plus commission plan:

A) They are flexible.
B) They are simpler and cheaper to administer.
C) Commissions can be adjusted to reflect the profitability of products.
D) Commissions provide a fairly immediate reinforcement for the salesperson's efforts.
E) This type of plan is good for relatively complex products or services.

Question 64

You have just been promoted to the position of sales manager. One of your first tasks is to evaluate the level of compensation for your sales force. Which, if any, of the following sources available will help you in your task?

A) Conference Board reports on pay levels
B) trade association reports on pay levels
C) Dartnell Corporation reports on pay levels
D) all of the above
E) none of the above, you would use instinct.

Question 65

You have decided to change your commission structure to enhance market penetration. You now require the sales force to sell $35,000 worth of product each month to make a commission. Those who sell below $35,000 will not receive commissions. This $35,000 level is called:

A) commission threshold.
B) wage cap.
C) progressive incentive plan.
D) fringe benefit stage.
E) none of the above.

Question 66

Industrial sales reps are often paid with a compensation plan that can be tailored to the incentive needs of a particular firm but also has a fixed salary component. This type of plan is called:

A) gross margin plan.
B) straight salary.
C) salary plus commission.
D) fringe benefit design.

Question 67

Your boss thinks you should implement a salary plus commission plan. You have a meeting with her to outline the drawback(s) of this type of plan. Among the drawback(s) you will discuss include:

A) more complicated to explain to salespeople.
B) more costly to administer.
C) sales managers lose control in direct proportion to the amount of commissions paid.
D) If an incentive ceiling is put in place, it could dampen some salespeople's motivation.
E) all of the above.

Question 68

You are leaning towards implementing a salary plus commission plan for your sales force. You recognize that this plan is popular because it provides:

A) fixed income security.
B) incentive to increase sales.
C) both fixed income security and incentive to increase sales.
D) stock options in all cases.
E) none of the above.

Question 69

Your customer's buying cycle is approximately 2 years and your reps need to invest significant amounts of time understanding their customers. Your ultimate goal is to control selling expense and provide extra rewards for added results. Based on this information, which salesperson compensation plan would work best?

A) salary only
B) salary plus monthly commission
C) salary plus year-end bonus
D) commission only
E) commission plus bonus

Question 70

The compensation plan in which virtually every type of sales activity is rewarded, is a:

A) progressive incentive rate plan.
B) salary plus commission plus bonus plan.
C) straight commission.
D) fringe benefit plan.
E) none of the above.

Question 71

Which of the following accurately describe per diem expense plans?

A) a floating rate of reimbursement is used depending on the situation.
B) expenses come from commissions.
C) a fixed dollar amount is paid for each day or week in the field.
D) a ceiling amount is set for payment in all circumstances.
E) none of the above.

Question 72

Which of the following plans allows the salesperson and company to share the same pool of money so that both are interested in maximizing the pool?

A) combination plans
B) gross margin commissions
C) group bonus plans
D) expense accounts
E) social security plans

Question 73

As a sales manager, you liked the advantages that salary plus bonus plans offer yet you were very concerned about some of the following serious problems associated with it:

A) the size of individual payments are set arbitrarily.
B) bonus payments are too small to have any impact on the activities of salespeople.
C) payments are received so long after goals are achieved they provide little incentive.
D) both a and c of the above.
E) all of the above.

Question 74

If a salesperson receives a set amount of money for mileage, meals, and hotel, what type of expense plan is she receiving?

A) an unlimited plan
B) a per diem plan
C) a limited plan
D) a bonus plan
E) none of the above

Question 75

Three types of expense plans that can be used include:

A) unlimited, limited, per diem.
B) restricted, unrestricted, per diem.
C) restricted, unrestricted, partial.
D) full, partial, per diem.
E) none of the above: there are only 2 types.

Question 76

As a branch manager of an office products company, you notice a large disparity between your top salespeople and your mid- to low-performing salespeople. The current culture is for each salesperson to work independently of each other, but you want to change the culture to more of a team atmosphere where the top salespeople help train the lower producers. However, you don't want to lower the motivation level either. Which of the following compensation plans would you implement to help you accomplish this?

A) straight salary
B) salary plus year-end bonus
C) straight commission
D) salary plus commission plus year-end branch bonus
E) salary plus commission

Question 77

All of the following are possible benefits to salespeople except:

A) automobile.
B) food allowance.
C) lodging.
D) bail money for salespeople at conferences, "just in case".
E) tickets to theaters and sporting events.

Question 78

The expense plan that is cheapest to administer is:

A) unlimited.
B) per diem.
C) limited.
D) fringe benefit.
E) none of the above.

Question 79

When more than one individual works together to make a sale, the selling process is described as:

A) networked commissions.
B) grouped territories.
C) team selling.
D) cross-functional territories.
E) none of the above.

Question 80

You are deciding on an expense reimbursement plan for your salespeople. You work at a small firm and don't have the staff to adequately monitor expense accounts. However, you also work in an industry where entertaining is routine. According to the text, which of the following plans is typically used by these companies?

A) unlimited plan
B) per diem plan
C) limited repayment plan
D) payroll withholding plan
E) tax incentive plan