Question

Sean, the owner of a hardware store, pays incentives to the members of his sales team based on their ability to sell products to industrial buyers. Each salesperson receives 20 percent of the amount earned from his or her total sales. In this scenario, which of the following incentive systems is Sean most likely using to reward his employees?

1) Commission-based system
2) Salary-based system
3) Profit-sharing system
4) Performance-based system

Answer 1

Sean is utilizing a commission-based system to incentivize his sales team, with each member earning 20 percent of their sales to industrial buyers.

Step-by-step explanation:

he scenario involving Sean and his sales team illustrates the use of a commission-based system as a method of rewarding and motivating employees. In this incentive structure, each salesperson's compensation is directly linked to the sales they generate, creating a performance-related reward system. This approach is common in sales roles where the emphasis is on driving increased sales volume.

The key feature of a commission-based system is that salespeople receive a percentage of the sales they make. In this specific case, the 20 percent incentive is directly tied to the amount of sales achieved, particularly in dealings with industrial buyers. This means that the more a salesperson sells, the higher their commission earnings, creating a direct correlation between performance and financial reward.

Unlike a fixed salary, where compensation remains constant regardless of individual performance, a commission-based system provides an additional layer of motivation for salespeople to actively pursue and close deals. It aligns the interests of the sales team with the company's sales objectives, as increased sales not only benefit the organization but also result in higher earnings for the individual salesperson.