Design a commission plan that drives sales - Sales Commissions
If you establish and oversee the commission package for your company's sales force, you should consider numerous components to create a plan that both fairly compensates and adequately motivates the sales team. Ultimately, your plan should keep your salespeople happy while supporting and advancing company goals.
GROUND RULES
You will find that methods for creating a compensation plan vary widely and often reflect industry-specific standards. However, some ground rules cut across industries and they can provide a framework for establishing or reviewing your company's sales incentive package. Some of the more important rules include:
* Start with the outcomes and behaviors you want to foster;
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* Prioritize behaviors;
* Keep the incentives flexible so that they can evolve along with your company's goals;
* Make the compensation plan easy for everyone to understand;
* Benchmark your competition to stay competitive; and
* Review regularly for relevance.
START WITH RESULTS
Of fundamental importance is to determine what results you want to encourage and to design your plan from there.
A sales team's goals should reflect the company's larger goals. Consider reprinting corporate goals in your sales agreements to underscore a unity of purpose. For additional clarity, you may want to include work objectives, even if they are not tied to commissions.
SOME CARROTS ARE LARGER THAN OTHERS
Every incentive in a commission plan is a carrot, but some carrots can be larger than others depending on the behavior they reward. Prioritize the behaviors you want from your sales force. You then can set up a system of rewards that encourages top-priority behavior, as well as motivates salespeople for situations that are clearly distinguishable.
For example, you may want to commission third-party products at a different rate. You also might consider commissioning services differently than products.
You can implement an accelerator plan, which provides flexibility in the commission percentage earned and paid. In this case salespeople are paid at a lower rate until they meet their target.
After that, they are compensated at a more accelerated rate for every dollar they generate in excess of the target.
KEEP IT SIMPLE
A commission plan needs to be easy for your sales team to understand. Not only do sales people need to see clearly what is motivating them, but you don't want to spend your time haggling over commission payments.
Clearly identify how commissions are earned and keep the calculation formulas straightforward.
You can check your plan's simplicity by creating a few sales scenarios and asking the sales team to derive the compensation. If the plan is easily understood, everyone should come up with the same numbers. If different figures are calculated, consider reworking the plan.
KNOW YOUR COMPETITION
If you want to retain a top-level sales force, your plan needs to be competitive. Gather intelligence on how your competitors compensate their sales professionals. You can figure out what commission levels are reasonable and competitive for your industry or profession through an Internet search at a source such as www.salary.com.
Human resource specialists in an industry often can help you locate surveys with compensation information; or sales professionals always know what their industry pays and can share documentation. You also can tap in to your industry's professional association or ask your peers how they structure their commission contracts.
COMMISSION STRUCTURES
At the core of any incentive plan is determining what role commissions play in the overall sales compensation package. Four of the most common commission structures are:
* Commission only;
* Commission plus salary;
* Commission plus bonus; or
* Commission plus salary, plus bonus.
Although industry standards carry significant weight when creating a commission structure, ultimately your budget and priorities will determine how you pay sales professionals.
Again, when you hire sales professionals, they should immediately understand their earnings potential. For example, if you are paying commission only, you can specify that the commission will be X percent of the net sale, less any discounts. Or, you can define a base salary along with a target commission amount--the amount the salesperson would earn at 100 percent of quota. You might pay 50 percent base and 50 percent commission, or 80 percent salary and 20 percent commission.
If you pay bonuses, you'll need to determine not only the percentage, but if they are based on company-wide goals, individual goals or both.
DIFFERENT PAY FOR DIFFERENT PEOPLE?
If multiple salespeople do the same job, their commission compensation should be equal. On the other hand, if job responsibilities really are different, these expectations should be spelled out and compensated for appropriately.
You might want to reward salespeople through higher base salaries for length of service, experience or stellar performance. Most importantly, be clear with your sales staff and apply any differences consistently.
Affichage des articles dont le libellé est Business. Afficher tous les articles
Affichage des articles dont le libellé est Business. Afficher tous les articles
mercredi 28 octobre 2009
FAS 109
FAS 109: a primer for non-accountants - Financial Accounting Standards Board's "Statement 109: Accounting for Income Taxes"
Introduction
Income tax provisions and Schedule M-1(1) of Form 1120 (Corporation Income Tax Return) bridge the financial accounting world and the Internal Revenue Code. The benefit of understanding an income tax provision and an M-1 is that a preparer can bridge the gap between these two worlds.
This will in turn allow the preparer to talk intelligently with auditors, controllers, chief financial officers, corporate tax consultants, and tax return preparers. Because many controllers and CFOs do not have a tax background, it is important to learn at least the fundamentals of accounting for income taxes for financial accounting purposes.
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This article does not discuss every situation that may arise on an income tax provision. What follows is intended to cover the purpose of a provision and the components of a provision, including deferred tax assets and liabilities as well as effective tax rate. The article concludes with an income tax provision template with the formulas footnoted.
Purpose of an Income Tax Provision
The Financial Accounting Standards Board issued "Statement 109: Accounting for Income Taxes" (FAS 109) in February 1992. The purpose of FAS 109 is to recognize (a) the amount of taxes payable or refundable for the current year and (b) the deferred tax liabilities and assets for the future tax consequences of events that have been recognized in a corporation's financial statements or tax returns. In essence, FAS 109 requires public companies to disclose a reconciliation of the reported amount of income tax expense to the amount of income tax expense that would result from applying domestic federal statutory rates to pretax financial income.
Deferred Tax Assets/Liabilities: How Do They Work?
Technically, deferred tax assets/liabilities are timing or temporary differences multiplied by the tax rate, also known as "tax effected." Temporary differences arise where the tax treatment of an item is temporarily different from its financial accounting treatment. For example, for a specific account, GAAP may allow a $20,000 expense and the Internal Revenue Code may allow only an $8,000 tax deduction. In this case, there will be a temporary difference if the Internal Revenue Code allows for the remaining $12,000 to be deducted in subsequent years.
A deferred tax asset/liability is the sum of the temporary differences for the ending balance in that account multiplied by the tax rate. The ending balance is relevant because FAS 109 takes a balance sheet approach. "Balance sheet approach" means that in arriving at a deferred tax asset or liability, the ending balance amount is the relevant number. Therefore, in the example above, if the account had a prior-year ending balance for tax purposes of $30,000 and $65,000 for book purposes and a current-year ending balance of $38,000 for tax purposes and $85,000 for book purposes then the temporary difference would be $47,000.
To further illustrate, assume the above balances are accrued vacation. Thus, at the end of the prior year (i.e., prior-year ending balance) there was a $65,000 accrual of vacation for book purposes. This means that, as of the end of the year, there was $65,000 of vacation expense that was owed to the employees, but the employees had not taken the vacation days by year-end. For tax purposes, the balance was $30,000. The difference in the treatment results from a tax rule that allows a deduction for accrued vacation used within 2-1/2 months after yearend.(2) In the example, the employees took $30,000 of the $65,000 vacation accrual within the requisite time period. Therefore, of the $65,000 vacation for book purposes, $30,000 can be deducted-for tax purposes. As a result, at the end of the prior year, there existed a $35,000 temporary difference. This represents the amount expensed for book purposes but disallowed as a deduction for tax purposes.
At the end of the current year there exists an $85,000 balance in the vacation accrual account. This means that $85,000 worth of vacation days is owed to the company's employees but these days have not been taken. For tax purposes, $38,000 is the deduction. The deferred tax asset would be $47,000 multiplied by the tax rate. Schedule M-1 focuses on the income statement numbers; that is to say, the flux between the prior year's temporary difference and the current year's balance will be the Schedule M-1 entry. This is the current-year activity.Account 12/31/98 Current-year
Balance Activity
Vacation Book 65,000 20,000
Accrual Tax (30,000) (8,000)
35,000 12,000
Net Deferred
Tax Asset/
(Liability)
Account 12/31/99 Tax Deferred Tax
Balance Rate Asset/(Liability)
Vacation 85,000 X % 85,000 x X%
Accrual (38,000) X % (38,000) x X%
47,000
Net Deferred
Tax Asset/ X
(Liability)
1. Tax Rate
The tax rate used in the previous illustration, is the federal statutory rate plus the state tax rate, net of federal benefit. The federal statutory rate is set forth in section 11(b) of Internal Revenue Code. The state tax rate net of federal benefit, however, takes several calculations. First, if the company is only subject to tax in one state, then that income tax rate is used as the starting point. Most public companies, however, are subject to state tax in many states. Therefore, an estimate must be used by looking at total state taxes paid as a percentage of taxable income. For example, if 50 percent of Company X's income comes from New York (9 percent income tax rate) and 50 percent comes from Colorado (4.75 percent income tax rate), then the blended rate will be 6.875 percent. For more complicated provisions, rather than using a blended rate, separate components of the provision are calculated for each state based on projected apportionment factors.
Introduction
Income tax provisions and Schedule M-1(1) of Form 1120 (Corporation Income Tax Return) bridge the financial accounting world and the Internal Revenue Code. The benefit of understanding an income tax provision and an M-1 is that a preparer can bridge the gap between these two worlds.
This will in turn allow the preparer to talk intelligently with auditors, controllers, chief financial officers, corporate tax consultants, and tax return preparers. Because many controllers and CFOs do not have a tax background, it is important to learn at least the fundamentals of accounting for income taxes for financial accounting purposes.
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This article does not discuss every situation that may arise on an income tax provision. What follows is intended to cover the purpose of a provision and the components of a provision, including deferred tax assets and liabilities as well as effective tax rate. The article concludes with an income tax provision template with the formulas footnoted.
Purpose of an Income Tax Provision
The Financial Accounting Standards Board issued "Statement 109: Accounting for Income Taxes" (FAS 109) in February 1992. The purpose of FAS 109 is to recognize (a) the amount of taxes payable or refundable for the current year and (b) the deferred tax liabilities and assets for the future tax consequences of events that have been recognized in a corporation's financial statements or tax returns. In essence, FAS 109 requires public companies to disclose a reconciliation of the reported amount of income tax expense to the amount of income tax expense that would result from applying domestic federal statutory rates to pretax financial income.
Deferred Tax Assets/Liabilities: How Do They Work?
Technically, deferred tax assets/liabilities are timing or temporary differences multiplied by the tax rate, also known as "tax effected." Temporary differences arise where the tax treatment of an item is temporarily different from its financial accounting treatment. For example, for a specific account, GAAP may allow a $20,000 expense and the Internal Revenue Code may allow only an $8,000 tax deduction. In this case, there will be a temporary difference if the Internal Revenue Code allows for the remaining $12,000 to be deducted in subsequent years.
A deferred tax asset/liability is the sum of the temporary differences for the ending balance in that account multiplied by the tax rate. The ending balance is relevant because FAS 109 takes a balance sheet approach. "Balance sheet approach" means that in arriving at a deferred tax asset or liability, the ending balance amount is the relevant number. Therefore, in the example above, if the account had a prior-year ending balance for tax purposes of $30,000 and $65,000 for book purposes and a current-year ending balance of $38,000 for tax purposes and $85,000 for book purposes then the temporary difference would be $47,000.
To further illustrate, assume the above balances are accrued vacation. Thus, at the end of the prior year (i.e., prior-year ending balance) there was a $65,000 accrual of vacation for book purposes. This means that, as of the end of the year, there was $65,000 of vacation expense that was owed to the employees, but the employees had not taken the vacation days by year-end. For tax purposes, the balance was $30,000. The difference in the treatment results from a tax rule that allows a deduction for accrued vacation used within 2-1/2 months after yearend.(2) In the example, the employees took $30,000 of the $65,000 vacation accrual within the requisite time period. Therefore, of the $65,000 vacation for book purposes, $30,000 can be deducted-for tax purposes. As a result, at the end of the prior year, there existed a $35,000 temporary difference. This represents the amount expensed for book purposes but disallowed as a deduction for tax purposes.
At the end of the current year there exists an $85,000 balance in the vacation accrual account. This means that $85,000 worth of vacation days is owed to the company's employees but these days have not been taken. For tax purposes, $38,000 is the deduction. The deferred tax asset would be $47,000 multiplied by the tax rate. Schedule M-1 focuses on the income statement numbers; that is to say, the flux between the prior year's temporary difference and the current year's balance will be the Schedule M-1 entry. This is the current-year activity.Account 12/31/98 Current-year
Balance Activity
Vacation Book 65,000 20,000
Accrual Tax (30,000) (8,000)
35,000 12,000
Net Deferred
Tax Asset/
(Liability)
Account 12/31/99 Tax Deferred Tax
Balance Rate Asset/(Liability)
Vacation 85,000 X % 85,000 x X%
Accrual (38,000) X % (38,000) x X%
47,000
Net Deferred
Tax Asset/ X
(Liability)
1. Tax Rate
The tax rate used in the previous illustration, is the federal statutory rate plus the state tax rate, net of federal benefit. The federal statutory rate is set forth in section 11(b) of Internal Revenue Code. The state tax rate net of federal benefit, however, takes several calculations. First, if the company is only subject to tax in one state, then that income tax rate is used as the starting point. Most public companies, however, are subject to state tax in many states. Therefore, an estimate must be used by looking at total state taxes paid as a percentage of taxable income. For example, if 50 percent of Company X's income comes from New York (9 percent income tax rate) and 50 percent comes from Colorado (4.75 percent income tax rate), then the blended rate will be 6.875 percent. For more complicated provisions, rather than using a blended rate, separate components of the provision are calculated for each state based on projected apportionment factors.
7 tips for effective listening: productive listening does not occur naturally.
7 tips for effective listening: productive listening does not occur naturally. It requires hard work and practice - Back To Basics - effective listening is a crucial skill for internal auditors
TO BE SUCCESSFUL AT THEIR job, internal auditors must be able to write, speak, and listen effectively. Of these three skills, effective listening may be the most crucial because auditors are required to do it so often. Unfortunately, listening also may be the most difficult skill to master.
Effective listening is challenging, in part, because people often are more focused on what they're saying than on what they're hearing in return. According to a recent study by the Harvard Business Review, people think the voice mail they send is more important than the voice mail they receive. Generally, senders think that their message is more helpful and urgent than do the people who receive it.
Additionally, listening is difficult because people don't work as hard at it as they should. Listening seems to occur so naturally that putting a lot of effort into it doesn't seem necessary. However, hard work and effort is exactly what effective listening requires.
Internal auditors must listen to explanations, rationales, and defenses of financial practices and procedures. They are constantly communicating with fellow employees whose backgrounds range from accounting to finance to marketing to information systems. In addition, explanations by fellow employees of any "unusual" practices often pose a significant challenge to an internal auditor's listening skills. Auditors can use the following techniques to improve these skills.
1. CONCENTRATE ON WHAT OTHERS ARE SAYING. When listening to someone, do you often find yourself thinking about a job or task that is nearing deadline or an important family matter? In the middle of a conversation, do you sometimes realize that you haven't heard a word the other person has said? Most individuals speak at the rate of 175 to 200 words per minute. However, research suggests that we are very capable of listening and processing words at the rate of 600 to 1,000 words per minute. An internal auditor's job today is very fast and complex, and because the brain does not use all of its capacity when listening, an auditor's mind may drift to thinking of further questions or explanations rather than listening to the message at hand. This unused brainpower can be a barrier to effective listening, causing the auditor to miss or misinterpret what others are saying. It is important for internal auditors to actively concentrate on what others are saying so that effective communication can occur.
2. SEND THE NONVERBAL MESSAGE THAT YOU ARE LISTENING. When someone is talking to you, do you maintain eye contact with that person? Do you show the speaker you are listening by nodding your head? Does your body language transmit the message that you are listening? Are you leaning forward and not using your hands to play with things? Most communication experts agree that nonverbal messages can be three times as powerful as verbal messages. Effective communication becomes difficult anytime you send a nonverbal message that you're not really listening.
3. AVOID EARLY EVALUATIONS. When listening, do you often make immediate judgments about what the speaker is saying? Do you assume or guess what the speaker is going to say next? Do you sometimes discover later that you failed to interpret correctly what the speaker was telling you? Because a listener can listen at a faster rate than most speakers talk, there is a tendency to evaluate too quickly. That tendency is perhaps the greatest barrier to effective listening. It is especially important to avoid early evaluations when listening to a person with whom you disagree. When listeners begin to disagree with a sender's message, they tend to misinterpret the remaining information and distort its intended meaning so that it is consistent with their own beliefs.
4. AVOID GETTING DEFENSIVE. Do you ever take what another person says personally when what her or she is saying is not meant to be personal? Do you ever become angry at what another person says? Careful listening does not mean that you will always agree with the other party's point of view, but it does mean that you will try to listen to what the other person is saying without becoming overly defensive. Too much time spent explaining, elaborating, and defending your decision or position is a sure sign that you are not listening. This is because your role has changed from one of listening to a role of convincing others they are wrong. After listening to a position or suggestion with which you disagree, simply respond with something like, "I understand your point. We just disagree on this one." Effective listeners can listen calmly to another person even when that person is offering unjust criticism.
5. PRACTICE PARAPHRASING. Paraphrasing is the art of putting into your own words what you thought you heard and saying it back to the sender. For example, a subordinate might say: "You have been unfair to rate me so low on my performance appraisal. You have rated me lower than Jim. I can do the job better than him, and I've been here longer." A paraphrased response might be: "I can see that you are upset about your rating. You think it was unfair for me to rate you as I did." Paraphrasing is a great technique for improving your listening and problem-solving skills. First, you have to listen very carefully if you are going to accurately paraphrase what you heard. Second, the paraphrasing response will clarify for the sender that his or her message was correctly received and encourage the sender to expand on what he or she is trying to communicate.
TO BE SUCCESSFUL AT THEIR job, internal auditors must be able to write, speak, and listen effectively. Of these three skills, effective listening may be the most crucial because auditors are required to do it so often. Unfortunately, listening also may be the most difficult skill to master.
Effective listening is challenging, in part, because people often are more focused on what they're saying than on what they're hearing in return. According to a recent study by the Harvard Business Review, people think the voice mail they send is more important than the voice mail they receive. Generally, senders think that their message is more helpful and urgent than do the people who receive it.
Additionally, listening is difficult because people don't work as hard at it as they should. Listening seems to occur so naturally that putting a lot of effort into it doesn't seem necessary. However, hard work and effort is exactly what effective listening requires.
Internal auditors must listen to explanations, rationales, and defenses of financial practices and procedures. They are constantly communicating with fellow employees whose backgrounds range from accounting to finance to marketing to information systems. In addition, explanations by fellow employees of any "unusual" practices often pose a significant challenge to an internal auditor's listening skills. Auditors can use the following techniques to improve these skills.
1. CONCENTRATE ON WHAT OTHERS ARE SAYING. When listening to someone, do you often find yourself thinking about a job or task that is nearing deadline or an important family matter? In the middle of a conversation, do you sometimes realize that you haven't heard a word the other person has said? Most individuals speak at the rate of 175 to 200 words per minute. However, research suggests that we are very capable of listening and processing words at the rate of 600 to 1,000 words per minute. An internal auditor's job today is very fast and complex, and because the brain does not use all of its capacity when listening, an auditor's mind may drift to thinking of further questions or explanations rather than listening to the message at hand. This unused brainpower can be a barrier to effective listening, causing the auditor to miss or misinterpret what others are saying. It is important for internal auditors to actively concentrate on what others are saying so that effective communication can occur.
2. SEND THE NONVERBAL MESSAGE THAT YOU ARE LISTENING. When someone is talking to you, do you maintain eye contact with that person? Do you show the speaker you are listening by nodding your head? Does your body language transmit the message that you are listening? Are you leaning forward and not using your hands to play with things? Most communication experts agree that nonverbal messages can be three times as powerful as verbal messages. Effective communication becomes difficult anytime you send a nonverbal message that you're not really listening.
3. AVOID EARLY EVALUATIONS. When listening, do you often make immediate judgments about what the speaker is saying? Do you assume or guess what the speaker is going to say next? Do you sometimes discover later that you failed to interpret correctly what the speaker was telling you? Because a listener can listen at a faster rate than most speakers talk, there is a tendency to evaluate too quickly. That tendency is perhaps the greatest barrier to effective listening. It is especially important to avoid early evaluations when listening to a person with whom you disagree. When listeners begin to disagree with a sender's message, they tend to misinterpret the remaining information and distort its intended meaning so that it is consistent with their own beliefs.
4. AVOID GETTING DEFENSIVE. Do you ever take what another person says personally when what her or she is saying is not meant to be personal? Do you ever become angry at what another person says? Careful listening does not mean that you will always agree with the other party's point of view, but it does mean that you will try to listen to what the other person is saying without becoming overly defensive. Too much time spent explaining, elaborating, and defending your decision or position is a sure sign that you are not listening. This is because your role has changed from one of listening to a role of convincing others they are wrong. After listening to a position or suggestion with which you disagree, simply respond with something like, "I understand your point. We just disagree on this one." Effective listeners can listen calmly to another person even when that person is offering unjust criticism.
5. PRACTICE PARAPHRASING. Paraphrasing is the art of putting into your own words what you thought you heard and saying it back to the sender. For example, a subordinate might say: "You have been unfair to rate me so low on my performance appraisal. You have rated me lower than Jim. I can do the job better than him, and I've been here longer." A paraphrased response might be: "I can see that you are upset about your rating. You think it was unfair for me to rate you as I did." Paraphrasing is a great technique for improving your listening and problem-solving skills. First, you have to listen very carefully if you are going to accurately paraphrase what you heard. Second, the paraphrasing response will clarify for the sender that his or her message was correctly received and encourage the sender to expand on what he or she is trying to communicate.
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