Straight Commission Plan - Definition & Meaning
What is Straight Commission Plan?
This is a form of salesforce compensation. In this, no fixed salary is paid to the employee. Instead, the salesperson is paid a percentage of the total sales he/she has achieved. It is a measure of his/her performance, rather than the number of hours put in at the job. This implicitly assumes that the performance of the salesperson can be gauged from the topline figure of the sales volume generated rather than the quality of the account.
It is often used when the aim is to generate maximum sales in the short term at the lowest cost. This is often used as the means of compensation for temporary staff. However, the problem with this plan is that the intended objective of pushing the salesforce to push the product is rarely achieved, because they may reach a level of income at which they are comfortable. Also, the top 5% of the salesforce will push the sales anyway, without the incentive of extra money.
However, in straight salary plan, only a regular salary is paid, with no commission for sales. In this case, the employee may not be incentivised enough to push the product as he is assured of his salary. This is used in the case of permanent employees.
Hence, this concludes the definition of Straight Commission Plan along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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