File: Ch12, Chapter 12: Compensating Salespeople

True/False

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

Ans: True
Response: See page 301

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.

Ans: True
Response: See page 302

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

Ans: True
Response: See page 302

4. 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.

Ans: True
Response: See page 302

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

Ans: False
Response: See page 302

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

Ans: True
Response: See page 301

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

Ans: True
Response: See page 302

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

Ans: True
Response: See page 302

9. 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.

Ans: False
Response: See page 304

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

Ans: False
Response: See page 302

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

plan.

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Ans: False
Response: See page 303

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

Ans: True
Response: See page 304

13. Salary compensation plans tend to overpay the least productive salespeople.

Ans: True
Response: See page 304

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

Ans: True
Response: See page 304

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

Ans: True
Response: See page 304

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

Ans: False
Response: See page 303

17. 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

Ans: True

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Response: See page 305

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

Ans: False
Response: See page 305

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

Ans: True
Response: See page 305

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

Ans: False
Response: See page 303

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

Ans: False
Response: See page 306

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

Ans: True
Response: See page 307

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

Ans: True

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Response: See page 307

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

Ans: True
Response: See page 307

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

Ans: True
Response: See page 307

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

Ans: True
Response: See page 309

27. 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.

Ans: True
Response: See page 303

28. 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.

Ans: True
Response: See page 311

29. 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.

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Ans: False
Response: See page 314

30. Travel and entertainment costs are a relatively insignificant portion of a

salesperson's compensation package.

Ans: False
Response: See page 315

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

Ans: False
Response: See page 312

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

Ans: False
Response: See page 312

33. 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.

Ans: True
Response: See page 313

34. Typical benefits include hospitalization, insurance, and pension plans.

Ans: True
Response: See page 313

35. Benefit packages amount to a negligible portion of the cost of keeping a

salesperson in the field.

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Ans: False
Response: See page 314

36. 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.

Ans: True
Response: See page 314

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

Ans: True
Response: See page 314

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

Ans: False
Response: See page 316

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

Ans: False
Response: See page 316

Multiple Choice

1. 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.

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d. encourage a “hard sell” attitude among the sales force.
e. micromanage salesperson behaviors.

Ans: b
Response: See page 301

2. 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.

Ans: a
Response: See page 32

3. 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.

Ans: c
Response: See page 302

4. 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

Ans: b
Response: See page 303

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5. 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.

Ans: e
Response: See page 302

6. 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

Ans: c
Response: See page 302

7. 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.

Ans: c
Response: See page 303

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8. ____________ 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

Ans: d
Response: See page 304

9. 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

Ans: c
Response: See page 327

10. 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.

Ans: c
Response: See page 304

11. Salary plans are not popular with salespeople because:

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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.

Ans: d
Response: See page 304

12. 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.

Ans: b
Response: See page 304

13. 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.

Ans: a
Response: See page 304

14. 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.

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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.

Ans: e
Response: See page 304

15. Although quite popular, salary compensation plans have some disadvantages. For
example, since the pay of salaried salespeople is not directly related to performance,
some of them may not make all of their calls or give the firm "a full day's work for a day's
pay." Nevertheless, salary compensation plans are appropriate in a number of
situations. Which of the following is/are most likely to be among them?

a. salespeople selling complex aerospace products to the airlines

b. detail people for pharmaceutical companies
c. wholesale salespeople selling building materials
d. all of the above
e. both a and b of the above

Use the information below to answer the following two questions:

Given: a = straight salary

b = salary plus commission
c = straight commission
d = salary plus bonus
e = none of the above

Answer the series of questions. Recalling the text's discussion of the different
compensation plans, which of the above best fits the following descriptions?

Ans: e
Response: See page 304

16. " tends to overpay the least productive member of a sales team; it allows
maximum control over salespeople's activities; and although it makes it easier for the
sales manager to reassign salespeople to new areas, salespeople usually require much
closer supervision."

Ans: a
Response: See page 304

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17. " tends to attract the most highly skilled salespeople; it fosters independence
of action and is easy to understand; it may lead to poor morale among the lower-paid
personnel; and under this plan salespeople are tempted to sell themselves rather than
the company."

Ans: c
Response: See page 305

18. 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

Ans: d
Response: See page 305

19. 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.

Ans: c
Response: See page 305

20. Straight commission is a(an):

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a. fixed cost.
b. variable cost.
c. semi-fixed cost.
d. intermediate cost.
e. material cost.

Ans: b
Response: See page 35

21. 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.

Ans: e
Response: See page 305

22. 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.

Ans: b
Response: See page 305

23. 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.

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d. when products are presold through advertising.
e. both a and c of the above.

Ans: e
Response: See page 305

24. 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.

Ans: e
Response: See page 305

25. __________ 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.

Ans: d
Response: See page 308

26. 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.

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Ans: d
Response: See page 307

27. 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.

Ans: a
Response: See page 307

28. 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

Ans: c
Response: See page 307

29. 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.

Ans: c

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Response: See page 307

30. 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.

Ans: c
Response: See page 308

31. 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.

Ans: b
Response: See page 307

32. 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.

Ans: b
Response: See page 308

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33. 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.

Ans: e
Response: See page 307

34. 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

Ans: d
Response: See page 309

35. 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

Ans: d
Response: See page 311

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36. 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.

Ans: c
Response: See page 310

37. 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

Ans: b
Response: See page 311

38. 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.

Ans: d
Response: See page 314

39. 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.

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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

Ans: a
Response: See page 312

40. 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

Ans: c
Response: See page 313

41. The expense plan that is cheapest to administer is:

a. unlimited.
b. per diem.
c. limited.
d. fringe benefit.
e. none of the above.

Ans: a
Response: See page 313

42. 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”.

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e. tickets to theaters and sporting events.

Ans: d
Response: See page 313

43. 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.

Ans: a
Response: See page 312

44. 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.

Ans: c
Response: See page 312

45. Benefits are often preferred by salespeople because:

a. they are more liquid than cash.

b. they offer tax benefits to the salesperson.
c. they provide more discretionary income.
d. they are especially made for overseas use.
e. none of the above.

Ans: b
Response: See page 313

46. According to your text, which benefit is offered by the greatest percentage of

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companies?

a. hospital
b. dental insurance
c. pension plan
d. profit sharing
e. educational assistance

Ans: a
Response: See page 313

47. Which of the following would not be a part of a well-designed compensation

package?

a. travel expenses
b. salary
c. bonuses
d. commissions
e. all of the above could be part of a compensation package.

Ans: e
Response: See page 341

48. You were given the mandate by your boss to change the compensation plan so that
the total salesperson compensation (salary plus commission) is lowered. You think you
have finally selected a compensation method and wage level that meets your boss’s
requirements. According to your text, what would you do next?

a. Implement the plan immediately because it fits the requirement of lowering

overall salesperson compensation.
b. Get salesperson feedback about your ideas.
c. Check to see how the salespeople would fare under the new plan by using sales
figures from the previous year and calculating expecting compensation.
d. Make sure that the accounting department can implement the new plan.
e. Tell the salespeople that they have been overpaid and now you are bringing them
back to reality.

Ans: c
Response: See page 316

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