In the sales industry, you can find two different types of ways employees are paid: salary and commission. A salary is a set amount of money an employee receives each pay period, regardless of how much or how little he sells. Commission is money earned based entirely on how many sales he makes. If he makes no sales, he makes no money. There are advantages and disadvantages to each type of income.
Salary isn't the same as hourly pay, as it's not based on how many hours an employee works. Salaries are set. Whenever payday comes around, the salary is what the employee can expect. The good thing about this for the employee is the security of knowing just how much money he has to properly plan a budget. A bad sales week won't impact his bottom line. The benefit for the employer is not having an employee motivated by money rather than the customer's needs. An employee driven by commission can turn into a pushy salesperson who scares customers away.
For all its security, salary sets limits on an employee's income. A week of amazing success won't increase his income by a penny. The only way he can see an increase is through promotions and raises. Since salary isn't based on how many hours an employee works, he may find himself putting in overtime without being paid extra for it. The downside for an employer is that employees may resent work if they don't feel they're being adequately compensated, which could result in a less-than ideal representation of the company during sales pitches.
The sky is literally the limit for a salesperson working on commission. He has a big part in determining how much money he makes. Employees may not have to work the typical 40-hour work week to make as much or more than their salaried counterparts. A commission-based system can be good for employers because the sales force is motivated to earn more which can ultimately put more money in companies' pockets.
The downside of commission is that an employee doesn't earn a dime if he doesn't make a sale. Making a living can be a struggle during downturns in the economy when people are being more careful with their spending. Some commission positions pay a draw on commission; the salesperson gets paid a certain amount each week to stay afloat until a sale is made. If he goes several weeks without making a sale, he could find himself in debt to his employer. The drawback for the employer happens when the sales force is motivated only by the commission money. They might neglect to sell lower-priced goods or services. They may avoid finding new clients and, instead, focus on selling high-priced items to current customers. If an employee gets seriously behind on a draw, he may quit and the employer could lose the money that was advanced to the employee.
Making Everyone Happy
Blending salary and commission may be one way to satisfy both the employer and the employee, suggests an article in "Entrepreneur." Employees who have a base salary plus commission often feel secure enough to remain with their companies, hungry enough to generate sales, and satisfied enough to not rabidly chase down clients. Employers may be able to build a sales force of loyal, motivated people who have an invested interest in seeing company growth.
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