File: ch12, Chapter 8: Compensating Salespeople

True/False

1. More than one-half of sales managers feel that their compensation plans do not motivate their
salespeople.

Ans. T
Response: See page 324

2. Sales force compensation plans should not only meet the goals of the firm, but also provide
competitive compensation packages to the marketplace.

Ans. T
Response: See page 325

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

Ans. F
Response: See page 325

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. T
Response: See page 325

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

Ans. F
Response: See page 325

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

Ans. T
Response: See page 325

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

Ans. T
Response: See page 325

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

Ans. T
Response: See page 325

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. F
Response: See page 327

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. F
Response: See page 327

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

Ans. F
Response: See page 327

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

Ans. T
Response: See page 327

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

Ans. T
Response: See page 327

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. T
Response: See page 327

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

Ans. T
Response: See page 328

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

Ans. F
Response: See page 328

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. T
Response: See page 328

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

Ans. F
Response: See page 325

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

Ans. T
Response: See page 328

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

Ans. F
Response: See page 328

21. Mary Kay Cosmetics, Tupperware, Avon, and other direct marketing firms all use a sales
force compensation package based on salary plus commission plus bonus.

Ans. F
Response: See page 329

22. Paying too much to salespeople can cause a reluctance of high-performing salespeople to
move into supervisory or managerial positions.

Ans. T
Response: See page 329

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

Ans. T
Response: See page 329

24. The primary benefit of salary-plus-commission plans is they allow the compensation program

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to be tailored to the needs of a particular firm.

Ans. T
Response: See page 329

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

Ans. T
Response: See page 330

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

Ans. T
Response: See page 331

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

Ans. T
Response: See page 332

28. Studies have shown that when incentive payments are based on a percentage of the sales of
each product, it is unlikely that salespeople will sell the mix of items that will lead to the most
profits.

Ans. T
Response: See page 335

29. 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. However, research
suggests that while salespeople earned more under this plan, the more traditional compensation
plans are more cost effective.

Ans. T
Response: See page 335

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30. 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.

Ans. F
Response: See page 336

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

Ans. F
Response: See page 337

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

Ans. F
Response: See page 338

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

Ans. F
Response: See page 338

34. 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. T
Response: See page 338

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

Ans. T
Response: See page 339

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

Ans. F
Response: See page 339

37. The primary decision regarding benefits is how much the company should be required to
contribute to the benefit program.

Ans. F
Response: See page 325

38. According to a recent business survey, pension plans were the most highly used fringe benefit
for the sales force.

Ans. F
Response: See page 340

39. As a sales manager, you must estimate how much a new compensation plan will cost once it
is introduced. In lieu of "judgment," field tests of the new compensation programs under actual
selling conditions can serve as a basis for your estimate.

Ans. F
Response: See page 340

40. In determining an appropriate level of wages to pay salespeople, a good starting point is the
average wage paid by other firms of the same size in the industry.

Ans. T
Response: See page 340

41. Compensation plans should be evaluated to see how they will affect salespeople's wages and
total costs.

Ans. T

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Response: See page 341

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

Ans. F
Response: See page 341

Multiple Choice

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

a. provide equal pay to all employees at the same level.

b. help attract and keep salespeople.
c. provide extensive benefits.
d. encourage a “hard sell” attitude among the sales force.
e. both a and c of the above.

Ans. b
Response: See page 324

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

a. establish goals.
b. choose methods.
c. determine job specifications.
d. set pay levels.
e. assemble the plan.

Ans. a
Response: See page 324

45. As a sales consultant specializing in designing compensation plans, you advise your clients
that the three most influencial parties on a plan’s design are:

a. the firm, the sales force, and the customers.

b. business, government, and labor.

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c. operations, personnel, and legal departments.
d. personnel, sales force, and the firm.
e. customers, government, and labor unions.

Ans. a
Response: See page 324

46. Which of the following is/are important to a firm expecting to maximize the productivity of
its sales force?

a. absolute level of wages

b. method of compensation
c. the seniority of the workers
d. all of the above
e. both a and b of the above

Ans. e
Response: See page 324

47. 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 325

48. A good compensation plan can:

a. make it easier to retain desirable employees.

b. direct salespeople to specific customers.
c. help salespeople meet quotas.
d. simplify the control of field sales representatives.
e. all of the above.

Ans. e
Response: See page 325

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49. 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 326

50. 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 326

51. ____________ 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 326

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52. 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 326

53. 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 326

54. Salary plans are not popular with salespeople because:

a. salaries are predictable.

b. salaries are stable.
c. run the risk of having little or no income.
d. 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 327

55. 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

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 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 327

56. 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 327

57. 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.

Ans. e
Response: See page 327

58. 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?

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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

Ans. e
Response: See page 327

59. 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?

" 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 327

60. " 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 327

61. 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

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e. none of the above

Ans. d
Response: See page 328

62. 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 328

63. Straight commission is a(an):

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

Ans. b
Response: See page 328

64. 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

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Response: See page 328

65. 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 328

66. 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.

Ans. e
Response: See page 329

67. 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 329

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

Ans. d
Response: See page 329

69. 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.

Ans. d
Response: See page 330

70. 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 330

71. 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

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d. commission only
e. commission plus bonus

Ans. c
Response: See page 330

72. 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
Response: See page 330

73. Industrial sales reps are often paid with a compensation plan that can be tailored to the
incentive needs of a particular firm. 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 331

74. 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 fairly simple and cheap 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 331

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75. 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 331

76. 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 331

77. 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 332

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78. 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 331

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.

Ans. c
Response: See page 334

80. 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 335

81. You have just been promoted to the position of sales manager. One of your first tasks is to

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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 336

82. 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

Ans. a
Response: See page 337

83. 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 338

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

a. unlimited.

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

Ans. a
Response: See page 338

85. All of the following are possible benefits to salespeople except:

a. automobile.
b. food allowance.
c. lodging.
d. forecasting error allowance.
e. tickets to theaters and sporting events.

Ans. d
Response: See page 339

86. 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 339

87. A typical expense allocation per salesperson is approximately:

a. less than $3,000 per year.

b. $5,000 per year.
c. $10,000 per year.
d. $16,000 per year.
e. $30,000 per year.

Ans. d
Response: See page 339

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88. 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 339

89. 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 339

90. Which benefit is offered by the greatest percentage of companies?

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

Ans. a
Response: See page 339

91. Which of the following would not be a part of a well-designed compensation package?

a. travel expenses
b. salary
c. bonuses
d. commissions

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e. all of the above could be part of a compensation package.

Ans. e
Response: See page 341

92. 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. 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 342

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