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About Commission and Profit Sharing Pay Systems

8-74. The mix of salary and commission. Belleville Fashions sells high-quality women's, men's, and children's clothing. The store employs a sales staff of 11 full-time employees and 12 part-time employees. Until recently, all sales staff were paid a flat salary and participated in a profit-sharing plan that provided benefits equal to about 5% of wages. Recently, the manager and owner of Belleville Fashions announced that in the future all compensation would be commission based. The initial commission rate was set equal to the rate that would have caused the actual wage bill based on the old system to be equal to what the wage bill would have been under the commission system. Profit sharing was discontinued.

Required:

a. What do you think of this change?
b. Describe some of the reactions that the owner might hear from the sales staff when announcing the change.
c. Do you think that the method of determining the commission rate was appropriate?
d. Describe what you think will happen under the new system.

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a. What do you think of this change?

Organizations that reward employees on commission-based salary usually have that structure set up as a way to improve employee performance and increase sales. Unless the company is going through financial difficulties, the introduction of commissions must be geared at getting the employees motivated, increase revenue for the ...

Solution Summary

Different types of pay systems can affect employees in a variety of ways; from Commission Pay Systems to Profit Sharing Pay Systems . Find out how.

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