The Advantages & Disadvantages of Salary

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As a business owner it can be a challenge to figure out how to compensate employees. Some people won't work for anything other than a fixed salary. They don't want to worry about the inconsistencies associated with a commission-based pay. Ultimately, you have to determine the method of pay that your company can best manage and to weigh the advantages and disadvantages of offering a fixed salary.

Advantage: Employee Security

There are many people who would simply prefer to work with the relative security of a salary position. They want to know precisely how much money they're going to make each month and to feel as though that income is dependable.

Disadvantage: Less Hungry Employees

An employee who works only on salary has little external motivation to go above and beyond. For example, an employee who is going to make the same amount of money whether he sells one refrigerator or 100 is more likely to become complacent.

Advantage: Straight-Forward Budgeting

For you as a business owner, paying fixed salaries allows you to precisely know how much you're going to pay out each month in labor costs and to budget accordingly. You can tweak the budget annually by deciding whether the business has flourished enough to offer merit raises.

Disadvantage: Not Tied to Your Profits

How much you spend on salaries often has little to do with your profits. On the other hand, when you pay commission, you pay when an employee does something to cause your business to see a profit. Each time a commission check is cut you have the satisfaction of knowing that it's due to something positive.

References

About the Author

Dana Sparks has been a professional writer since 1990. As a staff reporter, she has written hundreds of newspaper and magazine articles, and she is also the author of two published novels. Sparks holds a Bachelor of Arts in business.

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