A recently opened car dealership uses an incentive compensation plan for its sales people.The dealer provides money to its salespeople to cover basic living expenses and then shares a fixed percentage of the selling price of each car sold.However,the salesperson should repay the subsistence pay component within a year;otherwise he/she cannot continue in the employment of this dealer.Which type of sales compensation plan does this dealer adopt?
A)salary-plus-bonus
B)salary-plus-commission
C)commission-plus-draw
D)commission only

Question

Quizplus · Accepted Answer

The compensation plan described in the scenario is commission-plus-draw. This is because the salespeople are given a subsistence pay (also called a draw), which is repaid by the salesperson if they do not earn enough commissions to cover it. In addition, a fixed percentage of the selling price of each car sold is shared with the salesperson. This structure aligns the salesperson's incentives with those of the dealership, as they are motivated to sell more cars and earn higher commissions to cover their draw and earn additional income.

A Recently Opened Car Dealership Uses an Incentive Compensation Plan